Minutes from the Bank of Japan’s recent meeting reveal continued caution and uncertainty over future rate hikes. Policymakers are waiting for more data before considering any further moves, making another increase at the next meeting unlikely.
This cautious stance has added pressure on the , which continues to weaken against the US dollar. The rising USD/JPY exchange rate has renewed talk of potential government intervention to support the Japanese currency, at least temporarily.
On the US side, markets still lean toward a 25-basis-point rate cut in December, although the odds are gradually balancing with the possibility of no change.
Why is the BOJ delaying interest rate hikes?
In theory, Japan’s persistent inflation, pressure on the yen, and rising living costs should justify further interest rate hikes. Yet, the Bank of Japan remains cautious, repeatedly citing the need for more market data before acting. This has been its stance since the last hike, even though economic conditions have barely changed.
The impact of US tariffs on Japan also appears less severe than initially feared, suggesting external risks may be overstated. The BOJ’s hesitation reflects a deep-rooted concern about deflation, which shaped Japan’s economy for decades. Policymakers worry that tightening too quickly could undo years of effort to sustain moderate inflation.
If rate hikes remain off the table, pressure on the Japanese yen will likely intensify, potentially pushing it back toward the 160 per US dollar mark. This scenario often stirs talk of currency intervention to slow the yen’s slide. History suggests, though, that such moves only offer short-term relief unless supported by coordinated action from both the Central Bank and the Ministry of Finance.
Meanwhile, the US government shutdown has created a relatively quiet macroeconomic backdrop, but a few data releases are still coming through. The ISM services index delivered a positive surprise, holding well above the 50-point expansion line. In contrast, the manufacturing index remained weak, extending a months-long run of readings stuck below the growth threshold.
If this trend holds, expectations may build for another round of interest rate cuts next year, as worries over the broader economic outlook deepen.
USD/JPY Inches Closer to a Key Breakout Level
The key level for the USD/JPY pair is the repeatedly tested resistance around 154.50 yen per US dollar. The current outlook points to a potential breakout and continuation of the upward move, with the next target in the 158–159 yen per US dollar range.
If demand weakens again, the pair may remain in consolidation, with support near 153 yen per US dollar.
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