The Japanese yen gained ground against the U.S. dollar on Tuesday, briefly breaking through the ¥153 level and sparking speculation that the recent weakening trend may be reversing. The currency reached as strong as ¥152.9 to the dollar during Tokyo morning trading, a level not seen since mid-February, before retreating and fluctuating near ¥154 later in the day.

Market participants have debated the drivers behind the yen’s rebound, with some analysts suggesting the move does not align with typical signs of official intervention, due to the relatively gradual pace of appreciation. Japanese authorities have not confirmed any active currency market operations in the past week.

The rally, which began on September 2, is widely attributed to growing expectations that the Japanese government may adopt more assertive measures to support the yen amid mounting pressure from the United States. U.S. Treasury Secretary Scott Bessent has recently urged Japan to adjust its economic policies, contributing to investor reassessments of Japan’s monetary and fiscal strategies under Prime Minister Sanae Takaichi.

Toru Suehiro, chief economist at Daiwa Securities, noted in a report that the market had previously anticipated that the Takaichi administration would limit the Bank of Japan’s (BOJ) rate hikes, favoring fiscal stimulus to address inflation pressures exacerbated by a weaker yen—a stance that heightened concerns over fiscal risks. However, investor sentiment now appears to be shifting, with increasing belief that Japan may alter course, supporting a stronger yen.

Market pricing data from Totan ICAP indicated a 97% probability of a BOJ rate hike at the upcoming policy meeting, with expectations rising for multiple increases before year-end. This shift toward a more hawkish stance from Japan’s central bank marks a departure from previous anticipations of prolonged monetary easing.

Attention is also turning to Japan’s Government Pension Investment Fund, a major institutional investor with assets totaling approximately ¥318 trillion ($2.1 trillion). Finance Minister Satsuki Katayama has indicated the government might encourage the fund to allocate a greater proportion of its portfolio to domestic assets, a move that could further influence currency dynamics.

The yen’s upward movement comes after a period of sharp depreciation, reaching nearly ¥164 to the dollar in late July, the weakest level in four decades. A coordinated intervention by Japan and the United States then temporarily lifted the currency to around ¥155, but the gains were quickly eroded until the recent rally began.

With the yen now trading below ¥155, some analysts are cautiously optimistic that the extended weakening phase may have ended, signaling a resurgence of the currency’s strength against the dollar.