The US dollar fell sharply against the Japanese yen, nearing the 155 level. CME reports that a break below 155 could accelerate the yen's rise due to options selling pressure.

The dollar fell sharply against the yen on Thursday, hitting a more than one-month low of 155.34, a drop of 2.1% on the day. Option selling pressure is building around the 155 level; if this level is broken, both technical factors and derivatives pressures could drive the dollar further down.

The core drivers of the yen's strength come from two directions: a significant increase in market expectations regarding the magnitude of the Bank of Japan's interest rate hikes, and market alert triggered by comments from US Treasury Secretary Bessenter regarding Japan's policy direction.

CEM noted that demand for options with a strike price of 155 yen continued to accumulate throughout Thursday, with the most active trading in overnight dollar put options. If dollar put options are triggered, the yen's rise may accelerate further.

The yen's recent rally began on Wednesday, and the dollar's decline against the yen widened further on Thursday. If the dollar breaks below 155.23 against the yen, it will breach the low reached during the Japanese authorities' most recent round of yen intervention, and market attention is expected to surge.

Speculation had already emerged in the market on Wednesday that Tokyo authorities might have intervened, and the continued strengthening of the yen on Thursday further reinforced this speculation. As of press time, the dollar was down 2.08% against the yen, trading at 155.40.

Option pressure is concentrated at the 155 level.

According to CME, demand for options with a strike price of 155 yen continued to accumulate throughout Thursday, with overnight dollar put options being the most actively traded and becoming the contract with the highest trading volume of the day. CME noted that the yen's appreciation accelerated further as dollar sell options were triggered.

After the USD/JPY pair fell below 156.25, market interest in the 155 strike price clearly increased – 156.25 had also attracted significant option demand earlier in the day, creating a chain reaction between the two key levels.

Market participants pointed out that 155 is a key resistance level for the yen. When Japanese authorities intervened in the market in April this year, they failed to push the exchange rate above this level. Therefore, if 155 is effectively broken, it will send a clear technical bearish signal and may trigger a larger-scale programmed sell-off.

Signals from both Japan and the US policies boosted expectations for the yen.

Foreign exchange market participants generally believe that the expectation that the Bank of Japan may raise interest rates more than expected is the main fundamental support for the current strengthening of the yen.

Hajime Takada, a member of the Bank of Japan's Policy Board, previously hinted that officials were inclined to raise interest rates at the September 17-18 meeting, potentially by more than the market's expected 25 basis points, with subsequent meetings likely to follow suit. This prospect of consecutive rate hikes is repricing yen assets.

Meanwhile, U.S. Treasury Secretary Bessant publicly stated that Japan should gradually move away from the "Takahashi Economics" style of reflation policy. This statement heightened market awareness of potential external pressure on Japan's exchange rate, monetary policy, and fiscal policy, further strengthening the yen's appreciation momentum to some extent.

The convergence of two forces—internal monetary policy shift and external policy pressure—forms the main narrative of the recent yen's performance, keeping the market highly focused on whether the 155 level can be held.

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