The Japanese Yen continued its downward trajectory against the US Dollar on Thursday, with the USD/JPY pair rising nearly 0.5% to 147.70. This follows a recent low of 145.48 on Wednesday, which occurred shortly after the Federal Reserve’s latest meeting. Trading sentiment is now shifting towards the monetary policy decision of the Bank of Japan (BoJ) scheduled for Friday.
Despite Japan facing persistent inflation rates exceeding 3% and increasing forecasts for monetary tightening, most analysts predict that the BoJ will maintain its key interest rate at 0.5%. Presently, the market assigns less than a 1% chance of a rate hike during this week’s meeting, though expectations for a potential increase by October stand at approximately 29%, with December’s figures higher at 63%, according to MNI Markets.
A survey conducted by Bloomberg, which garnered insights from 50 analysts, reflects a consensus that no policy changes will be made during this session. Market participants will closely scrutinize BoJ Governor Kazuo Ueda’s press conference scheduled for 6:30 GMT for any shifts in the bank’s communication that may signal future policy directions.
The BoJ’s cautious approach can be attributed to multifaceted uncertainties, including inflation trends, the risk of US tariffs, and the political landscape reshaped by Prime Minister Shigeru Ishiba’s unexpected resignation. Investor interest is piqued as the upcoming election of the new leader of the Liberal Democratic Party (LDP) on October 4 is expected to impact the nation’s economic strategies significantly.
Currently, the Yen is under pressure but benefits at times from falling US interest rates. Inflation figures released in July noted a headline rate of 3.1%, with core inflation maintained at 3.4%. Notably, fluctuating food prices, notably rice, appear to be influencing consumer pricing dynamics. Analysts, including Hirofumi Suzuki from Sumitomo Mitsui Banking Corporation, suggest that anticipated declines in rice prices may bring inflation back to a more controlled level.
Japan’s inflation report for August is also expected to be publicized shortly before the BoJ meeting, yet analysts are not anticipating it to significantly alter the central bank’s imminent decisions. The consensus for the ex-Fresh Food Consumer Price Index forecasts a reduction from 3.1% to 2.7%, suggesting a stabilization trend. Observations from Goldman Sachs indicate that the BoJ prefers to defer any potential rate hike until there are clear indicators of wage growth, especially relevant during the spring negotiations of 2026.
No growth or inflation forecasts will be discussed at this meeting, constraining the scope for immediate announcements. According to insights from Citi, the recent communications from the BoJ appear more aimed at curbing the Yen’s depreciation than indicating an impending policy shift.
Technical analysis of the USD/JPY pair illustrates significant uncertainty, as the currency has been oscillating within a broad range of 146 to 149 since early July. This trendless movement is exemplified by the 100-period Simple Moving Average on the 4-hour chart, which currently represents resistance at 147.48. A breakthrough beyond this level could see testing of the upper range near 149. Market participants are keenly aware that a clear direction in trading may depend on the outcomes of the BoJ’s decision and Governor Ueda’s subsequent statements.
As the Japanese Yen faces scrutiny, it is noteworthy that it has exhibited varying strength against major currencies; most significantly, it has shown resilience against the New Zealand Dollar. The ongoing developments will be closely monitored as traders await decisive movements in the currency markets.
