The BOJ did what markets expected: on September 18, it raised the rate from 1.00% to 1.25%, the highest level in 31 years. In theory, this should have supported the yen. Instead, USD/JPY continued to rise. The reason is simple: the hike had already been largely priced in, while the market was focused on the BOJ’s next move.
Several factors are still working against the yen. The interest-rate gap between the US and Japan remains huge – 4.00% versus 1.15% in favour of the dollar. Carry trade – borrowing cheaply in yen to invest in higher-yielding dollar assets – is still working, while Japan’s fiscal stimulus conflicts with the BOJ’s tighter monetary policy.
💥 Japan has already tried to reverse the trend through direct interventions. In late April, when USD/JPY moved above 160, the yen strengthened by about 3% after intervention. In late July, a joint Japan-US intervention produced a move of around 5%. Tens of billions of dollars were spent supporting the yen, but the effect was temporary each time.
That is why the psychological brake is becoming increasingly important.
In late January, a simple rate check – asking major banks for current FX quotes – was enough to strengthen the yen by almost 4%. After the BOJ meeting on September 18, the authorities used the same tactic again.
On September 24, Finance Minister Satsuki Katayama said that the principles behind the July joint US-Japan intervention remained in force. On September 25, the yen posted its best daily performance in almost three weeks – without any actual intervention. A hint from US President Trump about possible joint action by Tokyo and Washington was enough to make speculators start closing short yen positions.
⚠️ This is the main USD/JPY trap. Fundamental factors still support the dollar, but the closer the pair gets to 160 – and the faster it rises – the greater the risk of real intervention.
What do banks expect? MUFG sees USD/JPY near 156 by the end of 2026. ING allows for the pair to remain around 160, while JPMorgan sees a scenario where USD/JPY could fall to 142-146 if the global carry trade starts unwinding.
📊 Our mathematical model also points to 160 as the main target. The probability of touching this level by year-end is estimated at 86-92%, while for 165 it is 37-50%. A fall to 150 looks less likely at 19-25%, although with intervention the probability rises to 50%. A move to 145.00 is estimated at only 4-7%. But such calculations can quickly become outdated because of BOJ and Fed decisions, interventions, macro data or geopolitics.
The main question now is not whether the BOJ will raise rates again, but whether it can convince the market that it is ready to act faster and on a larger scale than investors are used to expecting.
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