USD/JPY: Dollar Spikes Above ¥156 as Fed and Bank of Japan Rate Paths Collide

The Fed has already tightened and Japan is expected to follow Friday. The pair now depends less on the rate moves than on what comes next.

💵 Hawkish Fed gives the dollar another lift

• USD/JPY climbed toward ¥156 Thursday, up from roughly ¥155.10 at Wednesday’s close, as the dollar reached a seven-week high against a basket of major currencies.
• Higher US rates and a surprisingly firm policy outlook restored some of the dollar’s yield advantage. The yen has washed out some 300 pips from its valuation against the dollar in just three days.
• The Federal Reserve unanimously raised its policy rate by 25 basis points to 3.75%–4.00%, delivering its first increase since 2023.
• Policymakers also indicated that at least one more hike may be needed this year, pushing traders to reconsider hopes for an early end to tightening.
• Even with Japan preparing to tighten, US yields remain substantially higher, making dollar-denominated assets more attractive and keeping upward pressure on the dollar-yen.

🇯🇵 BOJ hike is priced, Ueda’s message is not

• The Bank of Japan is widely expected to raise its benchmark rate from 1.00% to 1.25% on Friday, which would be its highest level in 31 years.
• Markets place roughly an 80% probability on the move, leaving limited scope for the hike itself to surprise.
• The larger catalyst will be Governor Kazuo Ueda’s press conference. A clear signal that inflation risks require additional increases could strengthen the yen. Cautious language or an emphasis on gradualism could weaken it.
• Economists expect the policy rate to reach 1.5% by March 2027 and 1.75% during the following quarter. That trajectory would reduce the gap with the US, but only slowly unless the BOJ signals that inflation warrants a faster pace.

📊 ¥156 becomes the immediate test

• The ¥156 area is the first important resistance zone, followed by roughly ¥156.50 and ¥157.00.
• A sustained move above those levels would strengthen the dollar’s momentum, although it would also increase the risk of sharper warnings — or action — from Japanese authorities.
• Initial support sits around ¥155, with ¥154.50 and ¥154 below it. A hawkish Ueda press conference combined with softer US yields could pull the pair toward those levels, especially because expectations for further BOJ tightening are already building.