News Maker 23

The USD/JPY pair weakened during Asian trading on Thursday (Sept. 17), hovering around the 156.00 level. This movement snapped a three-day winning streak and erased some of the US dollar's gains from the previous session. Market focus has now shifted to the Bank of Japan's (BoJ) interest rate decision scheduled for Friday (Sept. 18).

The BoJ is widely expected to raise its benchmark interest rate by 25 basis points to 1.25%, the highest level in approximately 31 years. These expectations are driven by persistent inflationary pressure—particularly from rising energy costs—and the central bank's desire to move monetary policy closer to a neutral stance.

Markets are also beginning to consider the possibility of further rate hikes beyond September. Expectations of additional tightening are supporting the yen, as this could narrow the yield gap between Japan and other nations. However, Reuters notes that the yen's strength remains contingent on how hawkish the BoJ's signals are regarding the future rate path.

Meanwhile, the US dollar continues to find support following the Federal Reserve's 25-basis-point rate hike on Wednesday. The Fed also signaled that further increases remain possible this year, given ongoing concerns about inflation. This hawkish stance has boosted the dollar and pushed up Treasury yields, helping to limit the decline in USD/JPY.

Geopolitical risks in the Middle East also continue to support the dollar's status as a safe-haven asset. Yemen's Houthi group claimed to have shot down a Saudi Arabian F-15 fighter jet over the Marib region, while fighting between Saudi forces and the Houthis has intensified in recent days. While the claim regarding the aircraft originated with the Houthis, the broader escalation of the conflict has heightened concerns regarding regional security and energy supply routes.

Newsmaker Analysis: Short-term movements in USD/JPY will likely depend heavily on the tone of the BoJ's policy stance. The interest rate hike to 1.25% has largely been priced in by the market, so the primary focus will be on signals regarding the next increase. A more hawkish statement could strengthen the yen and push the USD/JPY pair lower, whereas a more cautious stance could potentially allow the dollar to regain strength—particularly if support from Federal Reserve policy and safe-haven demand persists.