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Source: Newsmaker.id
The USD/JPY pair traded within a limited range on Friday (October 16), hovering around 158.05, yet it remains on track for its first weekly decline in five weeks. The weakening of the US dollar—which fell to a two-week low—served as the primary headwind for USD/JPY, following a sharp drop in US Treasury yields as a sell-off in artificial intelligence (AI)-related stocks prompted investors to shift toward government bonds.
The US Dollar Index (DXY) stood at approximately 101.72, down from the 102.94 level reached earlier in the week—a peak not seen since April 2025. This dollar weakness persisted even as higher-than-expected US inflation data fueled renewed expectations for a Federal Reserve rate hike. Nevertheless, the market anticipates that the Fed will likely keep interest rates unchanged at its October 27–28 meeting.
In a speech in Bangkok on Friday, Federal Reserve official Kevin Warsh once again refrained from providing guidance on the future direction of interest rates. Warsh emphasized that he did not wish to preempt the decisions of individual meetings, while reiterating the Fed’s commitment to maintaining price stability. The market now views December as the more probable timeframe for the next rate hike, with a probability of around 90%.
In Japan, the Bank of Japan (BoJ) remains on a path of gradual monetary tightening; however, these measures have yet to provide significant support for the yen. BoJ Governor Kazuo Ueda noted that accommodative financial conditions continue to underpin economic activity, though he warned of the risk that inflation could exceed the 2% target.
Ueda further asserted that the timing and pace of future policy adjustments would depend on the economic outlook and emerging risks. Previously, BoJ board member Junko Koeda suggested that the central bank should not be overly cautious regarding interest rate hikes, given that the risk of rising prices remains elevated and Japan’s financial conditions remain loose.
Newsmaker Analysis: USD/JPY remains in a tug-of-war phase. A weaker dollar and declining US Treasury yields have provided room for the yen to strengthen; however, the persistent, wide interest rate differential between the US and Japan continues to exert significant pressure on the yen. The Federal Reserve’s inclination to delay rate hikes until December is also a key factor. Should US yields continue to fall and the Bank of Japan (BoJ) adopt a more hawkish stance, USD/JPY could face downward pressure. Conversely, if expectations for a Federal Reserve rate hike intensify once again, the 158 level could potentially hold.
Source: Newsmaker.id