Japanese Yen Weakness at 154.05: Analysis of Policy Divergence between BoJ and Fed

During Monday’s Asian session, the USD/JPY pair is trading with moderate gains around 154.05, reflecting ongoing pressure on the Japanese currency. This quote implies that 15,000 yen in US dollars is approximately equal to 97.40 USD, illustrating the progressive weakening of the yen against the dollar.

Bank of Japan disappoints traders with cautious stance

The Bank of Japan negatively surprised markets by maintaining its policy rate at 0.5% during its October meeting, the sixth consecutive unchanged meeting since its last hike in January. Governor Kazuo Ueda explained that the institution needs to gather additional information about the wage momentum of the 2026 shunto before proceeding with future hikes.

Although the official clarified that the BoJ “has no preset position regarding the timing or whether to raise the rate,” its less assertive language about future moves has significantly affected sentiment towards the yen. This cautious stance contrasts with market expectations that anticipated a more decisive tightening of monetary policy.

The Fed reduces December cut expectations, benefiting the USD

In contrast, the Federal Reserve maintains a more restrictive tone. Although it lowered its benchmark rate to a range of 3.75%-4.0% in its second cut of the year, Chairman Jerome Powell indicated that an additional reduction at the December meeting is not inevitable.

The probabilities of a cut in December have dropped dramatically according to CME FedWatch: just 63% compared to 93% recorded seven days ago. This shift in narrative provides additional support to the US dollar.

Additional factors at play: Outlook for indicators and government shutdown

The economic calendar includes the release of the US ISM Manufacturing PMI for Monday, data that could influence the pair’s dynamics. Simultaneously, the US federal government shutdown continues without a clear resolution after six weeks, which could fuel economic uncertainty and press the dollar downward in the short term.

Fundamental factors shaping the Japanese Yen

The yen is mainly affected by the Bank of Japan’s policy direction, the yield differential between US and Japanese bonds, and market risk appetite. During 2013-2024, the BoJ’s ultra-accommodative policy produced a consistent depreciation of the yen against its international counterparts.

The gradual abandonment of this stance since 2024, along with cuts by other central banks, is narrowing the yield differential that previously favored the dollar significantly. In periods of volatility or financial stress, the yen typically strengthens as a safe-haven asset, although currently this dynamic is being countered by the policy gap between Washington and Tokyo.