Japanese Yen holds gains on BoJ's hawkish tilt
- USD/JPY softens to around 157.85 in Friday’s early European session.
- BoJ’s Koeda says central bank should not be overly cautious in raising rates.
- Fed Chair declines to offer clues on whether there will be an interest rate hike again in the October meeting.
The USD/JPY pair loses ground to near 157.85 during the early European trading hours on Friday. Hawkish hints from Bank of Japan (BoJ) policymakers provide some support to the Japanese Yen (JPY) against the US Dollar (USD).
BoJ board member Junko Koeda said on Thursday that the central bank should not become overly cautious about raising interest rates given considerable upside risks to inflation. Koeda added that Japan's financial conditions remain accommodative even after the past interest rate hikes, with little sign that higher borrowing costs were hurting household and business activities.
"The BoJ should adjust interest rates in a timely manner with an eye on the economic and price situation, while keeping in mind the estimated range of the neutral interest rate," said Koeda.
The BoJ’s next policy meeting is scheduled for October 29–30. The board will publish updated economic growth and inflation projections that traders will closely monitor for clues about when the next interest rate hike might occur.
During the International Monetary Fund (IMF) event on Friday, Federal Reserve (Fed) Chairman Kevin Warsh refrained from signaling whether there will be another interest rate hike again in the October policy meeting.
“I don’t prejudge meetings. I don’t believe in saying now what I might do at the meetings that we have in the balance of this year,” said Warsh, reiterating his opposition to the use of forward guidance for markets that should rely on interpreting data.
The Greenback attracts some sellers following Warsh’s speech. However, signs of hotter inflation in the US might help limit the USD’s losses. The US Producer Price Index (PPI) jumped by 6.3% year-on-year (YoY) in September, versus a rise of 5.6% prior (revised from 5.4%), the Bureau of Labor Statistics revealed on Thursday. This figure registered the largest increase since 2022 and was hotter than the forecast of an increase of 5.3%.
Yen sentiment steadies as BoJ’s Koeda cautions against excessive patience on hikes
Societe Generale notes that policy rhetoric remains a key driver for Yen sentiment, highlighting comments from BoJ board member Koeda, who “warns against being overly cautious on rate hikes.” The bank suggests that this firmer tone on normalization is helping to frame near-term expectations for the BoJ’s policy path alongside prevailing USD/JPY levels and the recent narrowing in US–Japan yield spreads.
BoJ’s Koeda flags higher neutral rate, keeping Yen bulls engaged
Koeda’s speech score at 8.2/10 matches the historic average on FXS Speechtracker, signaling a consistent tone but with a clear hawkish tilt versus past BoJ caution. Guidance that the neutral rate is “significantly above 1%,” underlying inflation stabilising around 2%, and the need to adjust policy in light of upside price risks collectively point to a BoJ that is more comfortable with further tightening, even without a preset pace of rate hikes.
The commitment to prevent underlying inflation from exceeding 2% and the explanation that the September rate hike reflected resilient economic data reinforce a bias toward additional normalization. By stressing that the monetary environment has been accommodative and that financial conditions must be assessed comprehensively alongside funding demand, Koeda underpins a constructive backdrop for the Yen, as markets can price a higher terminal rate path and reduced policy divergence versus other major currencies.
Technical Analysis: USD/JPY keeps a bearish tone under the key 100-day SMA
In the daily chart, USD/JPY keeps a capped tone as spot holds below the 20-period Bollinger middle band and well under the 100-day moving average (MA). The Relative Strength Index (14) at 51.1 remains neutral, suggesting limited directional conviction in the near term.
On the topside, initial resistance is located at the Bollinger midline near 157.95, followed by the upper band around 158.85, with the 100-day MA at 159.45 acting as a stronger barrier that would need to be reclaimed to revive bullish momentum. On the downside, immediate support emerges at the lower Bollinger band at 157.05, and a decisive break below this floor would open the door to a deeper corrective phase toward lower daily lows.
(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.
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