Yen slides despite BOJ hiking rates to 31-year high

The Bank of Japan raised its benchmark interest rate to 1.25% on Friday — the highest level since 1995 — yet the yen weakened sharply as two dissenting board members and cautious forward guidance from Governor Kazuo Ueda left traders doubting the pace of further tightening.globalbankingandfinance+1

The dollar rose as much as 1.3% against the yen to a two-week high of 158.05 before paring gains after Japanese authorities conducted rate checks in the currency market, a move the Nikkei newspaper reported as a preliminary step toward possible intervention. USD/JPY later settled around 156.60–157, and the yen was on track for its largest weekly decline since October 2025.inkl+1

Dissent and Dovish Tone Disappoint Markets

The 7–2 vote, with board members Asada and Sato dissenting, caught markets off guard. "I think that one of the more staggering aspects of it was that they couldn't even get the unanimous vote for that," said Ray Attrill, head of FX strategy at National Australia Bank. Governor Ueda pushed back on expectations for consecutive hikes, striking what Scotiabank strategists called "a cautious and equivocal" tone on the rate outlook.fxstreet+1

The dissenters had recent data on their side: Japanese core inflation eased to 1.7% in August from 1.8% in July, its first slowdown in four months. Steven Englander, head of G10 FX research at Standard Chartered, said the "lack of hiking punch makes it easier for USD to go higher".globalbankingandfinance+1

Intervention Risk and the Fed Factor

The BOJ decision landed just two days after the Federal Reserve raised its own rate to 3.75–4.00% on Wednesday and signaled more increases could follow, keeping the wide US-Japan rate differential firmly intact. Futures markets now price a roughly 55% chance of another Fed hike on October 28, up from 27% a week earlier, according to the CME Group's ↗ 1.79% FedWatch tool.vtmarkets+1

That widening gap has complicated Tokyo's efforts to support the yen. Finance Minister Satsuki Katayama said Japan "won't hesitate" to conduct further coordinated intervention, following the joint US-Japan operation in late July. Kevin Ford, FX and macro strategist at Convera, noted that "a hike that weakens the currency is an uncomfortable outcome for policymakers and gives the Ministry of Finance a stronger case to push back against one-sided price action".globalbankingandfinance+1

What Comes Next

With the BOJ's next move uncertain and the Fed leaning hawkish, strategists see near-term pressure on the yen persisting. Citigroup ↘ 0.70% projects the currency could weaken to around 159 per dollar in coming weeks, while Scotiabank flagged the psychologically important 160 level as a potential flashpoint. The yen had rallied to a seven-month high against the dollar earlier in September on hopes of aggressive BOJ tightening — hopes that Friday's decision largely dashed.briefs+2