The Japanese yen has slipped back toward 157.7 per US dollar, moving away from the one-month high it reached last week, as investors position for the Bank of Japan’s policy decision on Friday, October 30. The BoJ is expected to keep its policy rate at 1.25%, but inflation data suggest further hikes remain on the table.
Inflation keeps the BoJ on a tightening path
A key gauge of Japan’s service-sector inflation rose 3.7% year-on-year in September. Service-sector prices matter to the BoJ because they reflect domestic demand and wage growth rather than imported costs. Sustained service inflation strengthens the case for the central bank to keep normalising policy after decades of ultra-low rates.
So why is the yen still weak?
- The rate gap is still wide. Even after BoJ hikes, Japanese rates remain far below US rates, and markets are pricing a possible Fed hike in December. That keeps the “carry trade” (borrowing in yen to buy higher-yielding currencies) attractive.
- Dollar strength. The US Dollar Index has risen to two-week highs above 102.00.
- Risk appetite. A rebound in tech stocks has reduced demand for the yen as a safe haven.
Scenarios for Friday
Hawkish hold: If Governor Ueda clearly signals another hike soon, the yen could strengthen sharply, especially if the Fed sounds less hawkish than expected on Wednesday.
Cautious hold: If the BoJ sounds hesitant, USD/JPY could test the 158 area and above. At these levels, traders also stay alert to the risk of verbal warnings or intervention by Japan’s Ministry of Finance.
Trading tips for a two-central-bank week
- USD/JPY will react to both the Fed (Wednesday) and the BoJ (Friday), so volatility can come twice.
- Yen moves after BoJ meetings are often fast; use stop-losses and smaller positions.
- Watch Japanese government bond yields: rising JGB yields can support the yen.
Bottom line: Japanese inflation supports more BoJ hikes, but the yen needs a clear signal from Ueda, or a softer Fed, to reverse its recent weakness.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Trading forex and CFDs carries a high level of risk and may not be suitable for all investors. Market levels quoted are approximate at the time of writing.