Japanese Yen flatlines ahead of Fed rate decicion
- USD/JPY trades flat around 155.25 in Wednesday’s early Asian session.
- Fed is expected to raise the benchmark overnight interest rate by 25 bps to the 3.75%-4.00% range.
- Markets anticipate the BoJ to hike 25 bps at the upcoming meeting on Friday.
The USD/JPY pair holds steady near 155.25 during the early Asian session on Wednesday. Traders prefer to wait on the sidelines ahead of the US Federal Reserve (Fed) interest rate decision later on Wednesday. On Friday, attention will shift to the Bank of Japan (BoJ) interest rate decision.
Friday’s US inflation report showed that prices remain stubbornly high and core inflation, which excludes volatile food and energy, picked up in August from the previous month. Hotter US inflation data released last week bolstered expectations that the Fed would raise interest rates. The US central bank is widely expected to lift its short-term interest rate by Wednesday for the first time in three years to fight stubbornly high inflation.
Traders will closely monitor Fed Chairman Kevin Warsh’s press conference after the rate decision, as it may offer hints about the US interest rate outlook. Hawkish remarks from Fed policymakers could lift the USD against the JPY in the near term.
The BoJ is likely to raise its key policy interest rate by a quarter point to 1.25% from 1.00% at its September meeting on Friday. This would bring the highest borrowing costs for Japan since April 1995. Traders will keep an eye on BoJ Governor Kazuo Ueda about the pace of future rate hikes and how far the central bank could take rates under the current tightening cycle.
"Even if the BOJ hikes this time, it will be hard for the BOJ to be more hawkish than what the market expects," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, while flagging the risk of a retreat toward 157 yen per dollar.
Yen under pressure as BoJ tone and guidance take center stage
Strategists at Scotiabank note that the upcoming BoJ decision is unlikely to deliver major surprises on the headline move itself, with “a hike … widely expected and fully priced.” Instead, they argue that the key market driver will be “the central bank’s tone and its guidance on the pace of future hikes,” especially as “one additional hike [is] almost fully priced before year end.” In their view, this leaves the balance of risks skewed toward how firmly policymakers validate existing expectations for the BoJ’s tightening path.
Technical Analysis: USD/JPY
In the daily chart, USD/JPY remains under clear downside pressure as it holds below the Bollinger middle band and the 100-day simple moving average (SMA), keeping the broader tone bearish despite a recent bounce off the lower band. The Relative Strength Index (RSI) around 40 suggests subdued momentum, hinting that any corrective uptick would likely face selling interest into nearby overhead levels.
On the topside, initial resistance stands at the Bollinger middle band around 157.15, with a stronger cap at the 100-day SMA close to 159.60, ahead of the upper Bollinger band near 162.00. On the downside, the immediate focus is on the Bollinger lower band, now providing support around 152.35; a clear break below this area would expose further weakness, while holding above it would allow for a limited corrective recovery within the broader bearish context.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
