“When the facts change.”

Over and over again since Scott Bessent stepped in to help Japan shore up the beleaguered yen this summer, critics — myself among them — warned that absent a meaningful shift in the fundamentals, intervention was tantamount to throwing good money after bad.

Bessent knew that of course, which is why he demanded rate-hike promises from Tokyo in exchange for participating in the intervention. If there were any questions as to whether that was the quid pro quo, they were answered last week in Asheville.

Now, it’s no longer about whether the BoJ will accelerate the timetable on policy tightening, it’s about how large the hikes will be, and how fast. That, in turn, constitutes a shift in the fundamentals — the facts on the ground have changed.

In light of that, the yen’s got it workin,’ so to speak. On Monday, USDJPY fell another 1.2% on top of last week’s 2.4% decline.

As the figure shows, the yen’s now the strongest against the dollar since February.

There were two explanations for Monday’s move, one of which is evident from the chart: 155’s a key level. Once you push through that strike, you’re hittin’ folks’ stops. The other explanation was simply thin liquidity during the US holiday.

Whatever the impetus for the early-week rally extension, the more yen strength you get the larger the risk of (more) carry unwinds and short-covering. And, importantly, the higher the bar for a hawkish surprise from the BoJ.

That latter point’s crucial: If the yen rally extends “too” far into the September policy meeting, it’ll be at risk of a dramatic reversal in the event the hike isn’t big enough and/or the forward guidance not aggressive enough.

The yen also needs durable relief from resurgent crude prices (higher crude’s yen bearish) and a Fed that doesn’t undercut this whole effort by raising rates itself next week. Rate diffs, after all, still favor the dollar by a huge margin. Those facts haven’t changed, even if the disparity’s less acute than it was. That’s yet another reason why this Friday’s US CPI report is so critical for the near-term market narrative.

“Since 2023, the ‘right’ strategy has been to sell yen rallies when it makes even modest gains, earn carry and cash out at some later date,” SocGen’s Kit Juckes wrote. “However, US desire for a stronger yen makes that a more dangerous strategy than it was [given that] any sharp move can be magnified by speculation that another round of intervention has begun.”