The yen slid 0.5% to 158.21 per dollar, the steepest drop among G10 peers, after the BoJ’s September policy review—an outcome that disappointed traders seeking a clear hawkish tone. Takuya Kanda, senior FX analyst at Gaitame.com Research Institute, warned that hawkish rhetoric was not strong enough to lift expectations for a follow‑up hike.
The BoJ confirmed that its focus has pivoted to preventing inflation from overshooting its target, even as it raised the policy rate to the highest level since 1995. In the meeting’s summary, officials noted that the neutral rate could deviate above estimates and that a higher benchmark is desirable early.
Swaps market pricing for an October rate hike fell to just under 20% from a peak of more than 30% earlier. Samara Hammoud, strategist at Commonwealth Bank of Australia, added that a split decision at the BoJ and a hawkish Fed make additional hikes unlikely to support the yen.
Japanese government bond yields rose, especially on longer tenors, hinting that investors fear the BoJ may not act swiftly enough to tame inflation. Taro Kimura, senior Japan economist at Bloomberg Economics, points out that the Tankan survey showed confidence at its highest in over eight years, yet there is little sign of intensifying inflation pressure.
With the BoJ’s next policy meeting set for October, traders should watch the 158.21 threshold for potential intervention, as Kanda cautions, and keep an eye on the Fed’s recent rate hike that keeps a hawkish backdrop in the market.