BoJ Rate Hike to 1.25%: Why the Yen Is Still Stuck Near 157

The Bank of Japan has raised interest rates to their highest level in 31 years, yet the yen is still weaker against the dollar than it was before the decision. Twelve days on, USD/JPY is hovering near 157 as Tokyo steps up its warnings and traders weigh the next moves from both central banks.

The BoJ rate hike: what was decided

On 18 September the BoJ lifted its short-term policy rate by 25 basis points to 1.25%, the highest since 1995. The move came just three months after June’s hike to 1%.

The bank said underlying inflation risks overshooting its 2% target as firms become more aggressive in setting wages and prices and longer-term inflation expectations rise. It said it will keep raising rates in line with economic and price developments.

A split vote

The decision passed 7-2, with board members Toichiro Asada and Ayano Sato opposing the hike. Asada argued for a hold, pointing to core inflation below 2%. Two dissents raised doubts about how quickly the board is willing to move from here.

Why the yen weakened anyway

USD/JPY dipped to just under 156.00 around the decision, then rose about 1.3% on the day to near 158.00. The pair went on to reach just above 159.00 last week before pulling back.

The rate gap still dominates

• Bank of Japan: 1.25%, the highest in 31 years.
• Federal Reserve: 3.75%-4.00% after its 16 September hike, its first since 2023.
• The gap: the BoJ would need 10 more quarter-point hikes just to reach the Fed’s lower bound.

Bond markets tell the same story. The US 10-year Treasury yield reached about 5.27% on Monday, its highest since 2007, keeping the yield advantage firmly with the dollar.

Real rates are still negative

Tokyo core inflation for September is forecast at 2.4%, up from 1.8%. A print near that level would leave the BoJ’s policy rate more than a percentage point below inflation, which limits how much support the hike alone can give the yen.

Intervention risk caps USD/JPY

Tokyo has turned up the volume. Finance Minister Satsuki Katayama said on Tuesday that an undervalued yen is generally a problem, and that she had agreed with US Treasury Secretary Scott Bessent on 25 September to strengthen cooperation.

Japan’s top currency diplomat, Atsushi Mimura, said markets should take the “very clear” message from Tokyo and Washington seriously. The yen had already rebounded on Friday after reports that President Trump raised concerns about its weakness at his summit with Prime Minister Sanae Takaichi.

Why markets take the warnings seriously

• Japan and the US jointly intervened in late July, after the yen hit a near 40-year low of 163.99 per dollar on 23 July.
• Japan spent a record ¥15.4 trillion buying yen between 30 July and 26 August.
• A rate check by the authorities was reported on 18 September, the day of the BoJ decision.
• MUFG’s Lee Hardman said officials’ comments “continue to send a strong signal that Japan is prepared to intervene”, which is helping to cap USD/JPY even as the dollar strengthens broadly.

Where USD/JPY stands now

The yen was the strongest major currency on Tuesday, and USD/JPY slipped to near 156.70 early on Wednesday, down more than 0.3% on the day. A broad dollar pullback from a three-month high helped, after soft US job openings and consumer confidence data.

FXStreet’s technical analysis describes a symmetrical triangle, with its upper boundary near 158.80 and its lower boundary near 155.60. The 50-day EMA sits just above the market at 157.98.

Rate expectations are shifting on both sides of the Pacific:

• BoJ: Japanese rate markets price about a 36% chance of a back-to-back hike on 30 October, while MUFG expects the next move in December.
• Fed: CME FedWatch put the odds of an October hike at 47.1%, down from around 70% on Monday, with December at 92.5%. Fed Governor Michael Barr and Cleveland Fed President Beth Hammack both signalled that policy may need to tighten further.

Japanese data have been soft. Retail sales fell 1.2% month on month in August, and industrial production was down 2.2% year on year.

What to watch this week

• US PCE inflation (Wednesday): headline 3.7% and core 3.3% year on year expected, a key input for the Fed’s October decision.
• MoF intervention data (Wednesday): will show whether Tokyo bought yen between 27 August and 28 September, including around the reported rate check.
• Tankan survey (Wednesday, 23:50 GMT): the large manufacturers’ index is forecast at 25, up from 22.
• BoJ Summary of Opinions: the first detailed read on the board’s debate behind the split vote.
• Tokyo CPI (Thursday, 23:30 GMT) and US payrolls (Friday): fresh tests for the rate gap on both sides.

Key takeaways

• The BoJ raised rates by 25bp to 1.25% on 18 September, the highest since 1995, in a 7-2 vote with Asada and Sato dissenting.
• USD/JPY rose after the decision and reached just above 159.00 before easing back toward 157.
• The gap with the Fed’s 3.75%-4.00% range remains the main driver; the BoJ would need 10 more quarter-point hikes to close it.
• Warnings from Katayama and Mimura, plus Trump’s reported concerns, keep intervention risk in focus after July-August’s record ¥15.4 trillion of yen buying.
• US PCE, MoF intervention data, the Tankan and Tokyo CPI are the next tests for the pair.

CFDs are high-risk products and most retail accounts lose money; this article is educational market commentary, not financial advice.