The Bank of Japan (BoJ) decided on Friday to keep its short-term interest rate unchanged at 0.5% after wrapping up its two-day policy meeting. The vote ended 7–2, with two members favoring a bigger move.
This decision was fully in line with market expectations and marks the fifth straight meeting where the central bank has kept policy steady. The last hike was in January, when the BoJ raised rates by 25 basis points.
BoJ officials have repeated that more hikes could come in the future if inflation stays high, but the current political uncertainty in Japan is likely to delay any further tightening. Investors will now look closely at Governor Kazuo Ueda’s press conference for clues on when the bank might act next.
Why the BoJ Is Waiting
Prime Minister Shigeru Ishiba’s resignation earlier this month added fresh uncertainty to Japan’s outlook. A new leader will be chosen in October, and the frontrunner, former economic minister Sanae Sakaichi, is known to favor easier monetary policy. This makes it less likely the BoJ will tighten too soon.
Meanwhile, Japan’s economy remains relatively solid. GDP growth picked up in the second quarter, exports are strong, and unemployment dropped to 2.3% in July, its lowest level in almost five years. Wages are rising, supporting higher prices. Tokyo’s inflation data was mixed, with the headline CPI easing to 2.6% in August but core inflation staying sticky at 3%.
Impact on USD/JPY
The Japanese Yen has been gaining since late July, when USD/JPY peaked above 150. The rally has been driven by narrowing yield spreads between the US and Japan and expectations of Fed rate cuts.
However, the Fed’s 25 basis point cut this week means the USD is finding support again, creating a mixed picture. If Governor Ueda signals another BoJ hike later this year, the Yen could strengthen further. Otherwise, the JPY risks slipping back.
From a technical view, USD/JPY faces resistance near 147.40–147.50. A break above this level could open the way toward 148.00 and possibly 148.75–149.15. On the downside, support sits at 146.20 and 146.00. A clear drop below 146.00 could drag the pair toward 145.50 and even the 145.00 psychological mark.
