Why the Yen, Mexican Peso and Colombian Peso Rose Against the Dollar

Currency markets were delivering the same headline with three different explanations in early September 2026: the US dollar was falling against the Japanese yen, Mexican peso and Colombian peso, but the underlying capital flows were distinct.

Japan’s move was chiefly about a changing cost of funding. Mexico’s was supported by a still-large yield advantage and substantial investment inflows. Colombia’s rally coincided with firmer local risk appetite and support for oil-linked assets. Together, they show how differences in monetary policy and investor positioning can move capital across borders—but they do not make the three currencies the same trade.

The market levels

Exchange-rate quotations matter. USD/JPY, USD/MXN and USD/COP show how many yen or pesos buy one dollar. When those quotations fall, the respective local currency is strengthening.

• Japanese yen: The yen rose more than 2% against the dollar on September 3 and reached a one-month high as traders increased bets on a Bank of Japan rate increase.1719
• Mexican peso: USD/MXN was about 16.89 on September 5, a level described as the peso’s strongest since May 2024.7
• Colombian peso: USD/COP was quoted around 3,126.65 on September 4 by Bloomberg. Other market reporting placed it near 3,160 after the prior session, still far below the roughly 4,002 52-week high in pesos per dollar cited in that report.3340

These are time-specific market snapshots, not fixed exchange rates. Intraday prices can differ across trading venues and timestamps.

Japan: BOJ tightening made yen funding less attractive

The yen’s rally was closely tied to expectations that the Bank of Japan would raise rates by 25 basis points, to 1.25%, at its September meeting. By September 4, markets were pricing a 97% probability of that move, according to Reuters.18

That expectation matters because the yen has long been used as a funding currency. In a typical yen carry trade, an investor borrows yen at a relatively low cost and buys a higher-yielding asset elsewhere. If Japanese rates and short-dated Japanese yields rise, the financing advantage shrinks. Investors closing those positions must buy yen to repay yen borrowings, adding to demand for the currency.

Reuters reported that the yen’s initial surge was not backed by evidence of official intervention, reinforcing the view that rate expectations were a central driver.17 Bloomberg similarly described an unwind of yen-funded carry positions as helping send the currency to a one-month high.19

The important distinction is that a stronger yen was not simply a broad vote against the dollar. It was also a repricing of the cost and risk of borrowing yen.

Mexico: high carry returns and investment support the peso

Mexico’s case was almost the reverse of Japan’s. Banco de México had held its benchmark policy rate at 6.50%, preserving an elevated yield for peso assets even after earlier easing.116

That rate can support the peso through carry demand: investors may be more willing to hold Mexican bonds or deposits when the expected return is high enough to compensate for currency risk. It does not eliminate that risk—exchange-rate losses can quickly outweigh interest income—but it helps explain why peso assets can remain attractive when the dollar’s yield advantage is less decisive.

Mexico also reported record first-quarter foreign direct investment of $23.591 billion, up 10.4% from a year earlier. The official breakdown is an important qualification: $22.222 billion was reinvested earnings, while new investments totaled $1.705 billion.14 That supports the case for enduring corporate activity and investment ties, including manufacturing-oriented activity, but it should not be treated as a dollar-for-dollar measure of new foreign-exchange demand.

The trade-off of a strong peso

A stronger peso makes imports cheaper in local-currency terms, which can help consumers and businesses buying foreign goods or inputs. But it also reduces the peso value of exporters’ dollar revenue and can make Mexican exports less price-competitive abroad. The same exchange-rate strength that appeals to investors can therefore pressure export-oriented companies.

Colombia: local risk appetite and oil-linked sentiment

The Colombian peso strengthened alongside a broader improvement in sentiment toward local assets. Colombia’s COLCAP equity index rose 1.81% to 2,534 on September 3, while local reporting described a firmer peso and an oil-linked market backdrop.40

The macro narrative around Colombia also included high local interest rates and energy-sector support. Reports described the central bank’s benchmark rate as 12% and pointed to oil and coal export flows as contributors to the peso’s performance.41 Market data around September 4 also showed crude oil above $90 and USD/COP near 3,134, though these figures are market snapshots rather than evidence that oil alone caused the currency move.47

That caveat is essential. Colombia’s currency can benefit when investors seek high-yield emerging-market assets and when export-sector sentiment improves, but it is also exposed to shifts in oil prices, global risk appetite and domestic fiscal or political conditions. Scotiabank analysts had previously estimated that part of the peso’s appreciation could reflect an expectation-driven overshoot beyond traditional fundamentals.36

What the three rallies say about global capital flows

The common thread is monetary-policy divergence, but it works in opposite directions depending on the currency’s role:

• Japan: Expected tightening raises the cost of borrowing yen and can force investors to unwind yen-funded positions.
• Mexico: A 6.50% policy rate helps preserve the return available on peso assets, while direct investment provides an additional structural support.
• Colombia: High yields and improved sentiment toward oil-linked assets can draw or retain capital, though this support is more sensitive to risk conditions.

In other words, capital responds both to the return an investor expects to earn and to the cost of financing the position. A narrowing Japan–US rate gap can favor the yen by undermining a funding trade. High rates in Mexico and Colombia can support their currencies when investors believe the yield premium compensates for the risk.

What could reverse the moves

None of these supports is permanent. The yen’s rally could lose momentum if BOJ policy disappointed expectations or if US yields rose sharply. The Mexican peso remains exposed to shifts in rate expectations and trade-policy uncertainty. Colombia’s peso is particularly sensitive to commodity prices, global risk sentiment and domestic macroeconomic confidence.

The early-September moves therefore illustrate a broader foreign-exchange lesson: currencies may rise together against the dollar while being driven by very different combinations of central-bank expectations, carry positioning, investment flows and commodity-linked sentiment.