Finance Association, September 17 (Editor Niu Zhanlin) The US dollar exchange rate against the yen fell below the critical psychological level of 140 on Monday, the lowest level in nearly nine months. It once fell to 139.58 during the European session. Earlier, several media reported that the Federal Reserve may cut interest rates by 50 basis points this week.

Analysts said that several media reports say that cutting interest rates by 50 basis points is still an option, while former New York Federal Reserve Chairman Dudley also advocated drastic interest rate cuts, leading to a shift in market expectations.

The US interest rate futures market reflects a 51% chance that the central bank will cut interest rates by 50 basis points at this week's policy meeting, far higher than about 15% earlier last week.

Jefferies foreign exchange director Brad Bechtel said that after new inflation data strengthened expectations that the Fed would cut interest rates by 25 basis points, media reports introduced the possibility of cutting interest rates by 50 basis points to the market. Due to changes in market expectations, investors are adjusting their trading positions to accommodate a possible 50 basis point cut in interest rates.

The yen has been the best performing G10 currency this season, rising nearly 15% as investors expect interest spreads between the US and Japan to narrow further.

The Federal Reserve is almost certain to lower US borrowing costs this week. The only problem is the decline. Japan is expected to stand still on Friday after raising interest rates twice this year.

Chandresh Jain, an Asian interest rate and foreign exchange strategist at BNP Paribas, said, “All fluctuations now stem from interest rates, and the market is digesting the prospects of further interest rate cuts by the Federal Reserve and further interest rate hikes by the Bank of Japan.”

Jain expects the yen to continue to appreciate next year, but warned that there are “quite a few risks”, including the outcome of the US election and the risk of rising tariffs.

He added that foreign financial institutions will also be forced to sell part of their portfolios to cope with the liquidation of Japanese yen arbitrage transactions, but they have yet to see a complete collapse of arbitrage transactions.

Although the Bank of Japan may not change borrowing costs this week, most economists expect the central bank to increase borrowing costs again in December. The Bank of Japan raised the policy interest rate to 0.25% on July 31, causing turmoil in the global market in early August, which had an impact on assets such as currencies, bonds, and stocks.

Bank of Japan Review Member Naoki Tamura sent a strong hawkish signal to the outside world last Thursday: the Bank of Japan may raise interest rates more significantly in the future than many economists expected. He pointed out that Japan's neutral policy interest rate is 1% or higher, and that the Bank of Japan may have to raise interest rates quickly.

Furthermore, Japan's national holiday on Monday was also a reason for the yen's rise. Ryota Abe, an Asia-Pacific economist at Sumitomo Mitsui Banking Corporation, warned that holiday “speculators” take advantage of the opportunity of weak transactions, which can easily cause large market fluctuations.

However, he said that by the end of this year, the yen exchange rate may reach 1 US dollar to 135 yen, which is the highest level since May last year.” USD/JPY will definitely fall in the near future, accompanied by some sharp fluctuations.”