When will the Yen strengthen again? The USD/JPY continues to gain ground at 154 after the cautious shift by the BoJ

The USD/JPY currency pair continues to operate at elevated levels near 154.05 during Monday’s early hours in Asia, reflecting the persistent weakness of the Japanese Yen against the US Dollar. This movement comes after the Bank of Japan’s decision to maintain a cautious stance on monetary policy, disappointing market participants who were betting on a more aggressive escalation in interest rates.

The Bank of Japan halts expectations of hikes

In its October meeting, the BoJ decided to keep its policy rate unchanged at 0.5%, marking the sixth consecutive cycle of stability since the rate hike in January. Governor Kazuo Ueda made clear the institution’s cautious strategy: before considering new increases, the central bank wants to gather more data on how the wage boost from the 2026 Shunto will materialize.

This position contrasts with market expectations. Ueda emphasized that the BoJ “has no preset biases” regarding if and when it will adjust its policy rate, but avoided committing to a specific schedule. For traders, this message was equivalent to halting Yen’s short-term upward volatility aspirations. With Japan’s national debt approximately equivalent to 200 trillion yen converted to US dollars, the BoJ’s prudence reflects the macroeconomic complexities faced by the world’s third-largest economy.

The Federal Reserve keeps the dollar in shape

While the Yen faces pressure from its own central bank, the US Dollar receives support from a scenario of more robust US interest rates. Jerome Powell, Chair of the Federal Reserve, noted that an additional rate cut in December is not an automatic conclusion, cooling expectations of aggressive cuts.

Futures traders now estimate a 63% probability of a cut at the December meeting, significantly below the 93% recorded seven days ago, according to CME FedWatch monitoring. The Fed has already reduced its short-term benchmark rate to a range of 3.75%-4.0% in its second move this year.

External risks: US government shutdown

An additional factor that could pressure the USD is the prolongation of the US federal government shutdown, now in its sixth week with no clear resolution prospects. The deadlock in Congress over the approval of the funding bill backed by Republicans keeps uncertainty alive. If the situation worsens, economic concerns could turn against the USD, generating some relative strength for the JPY in broader horizons.

Overall Yen outlook: between monetary policy divergences

The recent performance of the Yen reflects deeper dynamics. Between 2013 and 2024, the BoJ’s ultra-accommodative policy caused a consistent depreciation of the Japanese currency against its main counterparts. The widened spread between US and Japanese 10-year bonds historically favored the Dollar.

However, the gradual shift of the Bank of Japan toward a less expansive stance, combined with rate cuts in other major central banks, is compressing these differentials. Despite these movements, the Yen maintains its status as a safe-haven asset, meaning that during episodes of global market stress, investors tend to repatriate capital into this currency, providing a relative stability anchor.

The USD/JPY market will continue to be determined by the pace of monetary normalization between Washington and Tokyo, the yield differential in fixed income, and the overall risk appetite sentiment among international participants.