Today’s Market Outlook 31 August 2026 Dollar Strength Pauses for a Correction; Yen Buying Emerges on BOJ Rate-Hike Expe
Today’s Market Outlook
31 August 2026
Dollar Strength Pauses for a Correction; Yen Buying Emerges on BOJ Rate-Hike Expectations
Month-End Flows and Large Option Expiries Also in Focus
Market Summary
At the start of the week, the dollar strength that followed Fed Chair Warsh’s speech last Friday is undergoing a temporary correction.
The Chair warned about inflation and emphasized the need to address it, which markets interpreted as a signal of further rate hikes. The dollar index remains above its 21-day moving average, indicating that the dollar’s underlying strength is still intact.
Meanwhile, comments from U.S. Treasury Secretary Bessent have brought expectations of an early Bank of Japan rate hike into focus, prompting an unwind of yen-selling positions.
Key levels in the London morning are:
・USD/JPY: around 159.75
・EUR/USD: around 1.1600
・EUR/JPY: in the 185.30 range
Today’s market is being shaped by the conflict between dollar support from U.S. rate-hike expectations and yen buying driven by expectations of BOJ policy tightening.
Will Dollar Strength Continue?
The Fed’s concern about inflation supported dollar buying at the end of last week.
However, the market interpreting Chair Warsh’s remarks as a rate-hike signal and an actual additional rate hike being implemented are two different matters.
U.S. employment-related indicators will be released throughout this week, with Friday’s U.S. employment report particularly important.
If employment and wage strength are confirmed, rate-hike expectations may be reinforced and dollar buying could resume. Conversely, if signs of a slowing labor market become clearer, rate-hike expectations may fade, leading to an unwinding of dollar strength.
Whether today’s dollar decline remains only a temporary correction should be judged by whether the dollar index can hold above its 21-day moving average, together with upcoming U.S. economic data.
BOJ Rate-Hike Expectations and the Yen
U.S. Treasury Secretary Bessent stated that he expects the BOJ Governor to make the right decision, while also saying that “Abenomics has come to an end.”
Markets have interpreted these comments as factors supporting the normalization of BOJ policy and an earlier rate hike, contributing to yen buying.
However, the Treasury Secretary’s remarks do not guarantee a BOJ rate hike. The focus will now be on whether BOJ Governor Ueda or other BOJ officials make comments supporting the case for additional tightening.
Attention should also be paid to remarks from Japanese and U.S. officials around the G20 Finance Ministers and Central Bank Governors Meeting.
USD/JPY
USD/JPY fell from around 160.20 in early Tokyo trading to a low near 159.48 in early London trading. It then stabilized and recovered toward 159.75.
Large option expiries are reported between 159.65 and 159.70 at today’s New York cut. As these levels are close to the current price, trading around them may become more prominent into the cut.
On the upside, the key question is whether USD/JPY can recover 160.00, followed by the day’s high near 160.20.
On the downside, the intraday low near 159.48 is the first important reference point. If yen buying intensifies again and the pair breaks below this level, the correction could extend.
Intervention concerns remain near 160, but there is no predetermined level at which intervention must occur.
EUR/USD
EUR/USD rebounded from around 1.1579 in early Tokyo trading and rose toward 1.1606 in early London trading.
The pair is currently trading near 1.1600. In addition to a correction of last Friday’s dollar buying, stronger-than-expected CPI readings from German states are supporting the euro.
The key levels are the 21-day moving average near 1.1590 and the large option expiry at 1.1600 for today’s New York cut.
An exceptionally large €2.9 billion option expiry is reported at 1.1600. This may encourage price action to remain centered around that level before the cut.
If EUR/USD holds above 1.1590 and breaks above 1.1606, the rebound may continue. Conversely, if it falls back below 1.1590, watch for a retest of the day’s low near 1.1579.
Option-related price attraction is not guaranteed. Economic data or large capital flows can take precedence.
Month-End and UK Market Holiday Effects
Today marks the end of August, making month-end portfolio and funding adjustments more likely to influence the market.
In addition, the United Kingdom is closed for a bank holiday. Lower-than-normal liquidity could result in larger price moves from individual orders.
The direction of month-end flows is uncertain. Temporary moves should not automatically be treated as the beginning of a new trend.
It will also be important to see whether prices move away from option levels after the New York cut.
Key Events Today
・Germany preliminary August CPI
・Turkey July employment data and second-quarter GDP
・Hong Kong July retail sales
・India second-quarter GDP
・South Africa July trade balance
・G20 Finance Ministers and Central Bank Governors Meeting
・Remarks from Japanese and U.S. monetary officials
・Month-end capital flows
Germany’s CPI is expected to rise 3.1% year-on-year and 0.3% month-on-month. The key question is whether the stronger readings from individual German states are reflected in the nationwide figure.
Summary
Today, the market is seeing yen buying driven by BOJ rate-hike expectations and a correction of last Friday’s dollar strength, within a broader dollar-supportive environment based on U.S. rate-hike expectations.
For the near term, the large option levels at 159.65–159.70 in USD/JPY and 1.1600 in EUR/USD are particularly important.
However, with a UK market holiday coinciding with month-end, short-term price moves may be misleading. The sustainability of dollar strength should be assessed not only through today’s flows, but also through this week’s U.S. employment data and comments from BOJ officials.
