The Japanese yen extended its recent slide this week, with the USD/JPY pair climbing to 157.03, its highest level since early September. The move came as traders weighed the latest policy decisions from the Bank of Japan (BoJ) and the Federal Reserve, both of which raised interest rates but delivered different signals about future tightening.
BoJ hikes but yen weakens
The BoJ delivered a widely expected 25 basis point rate increase, bringing its policy rate to 1.25%—the highest in over two decades. The central bank cited the need to support the yen and curb inflation, which remains above its comfort zone. Recent data showed headline CPI holding at 1.9%, while core CPI eased slightly to 1.7%.
Despite the hike, the yen failed to gain traction. Analysts point to the fact that the move was fully priced in, leaving no upside surprise for yen bulls. Moreover, with energy prices soaring—Brent and WTI crude both trading above $100 amid the US-Iran conflict—Japan's import-heavy economy faces continued inflationary pressure, which could prompt further BoJ action later this year.
Fed's hawkish stance lifts dollar
The Federal Reserve also raised rates by 25 basis points, bringing the target range to 3.75%–4.00%, in a unanimous decision. Fed Governor Kevin Warsh hinted at another increase, and market probabilities from Polymarket suggest a 51% chance of a hike in October and a 66% chance in December. The Fed's hawkish tone, coupled with sticky inflation—headline CPI rose 3.4% in August—has kept the dollar bid.
The divergence in policy outlook is a key driver for USD/JPY. While the BoJ's hike matched expectations, the Fed's signal for more tightening was seen as more aggressive, boosting the dollar. Additionally, with Japanese rates still significantly lower than US rates, the yen remains a favored funding currency for carry trades, adding further upward pressure on the pair.
Technical outlook
On the 2-hour chart, USD/JPY has been in a strong uptrend, moving from a low of 152.90 earlier this month to the current 157. The pair has broken above the key resistance at 156.75—its September 4 high—and the 50% Fibonacci retracement level. It is also trading above the 50-period exponential moving average (EMA) and has formed an ascending channel.
The Relative Strength Index (RSI) has entered overbought territory at 75.50, suggesting the pair may be due for a pullback. If a correction occurs, the lower boundary of the channel could act as support, potentially around the 155.50–156.00 zone.
For now, the fundamental backdrop remains supportive for further USD/JPY upside, but traders should watch for any shift in central bank rhetoric or unexpected economic data that could alter the trajectory.
This article is for informational purposes only and does not constitute financial advice.
