The Bank of Japan raised interest rates by 25 basis points to 1.25%, as expected, on Friday (September 18, 2026), during Asian trading hours. However, the U.S. dollar strengthened against the yen after the rate hike, pushing USD/JPY above 157, as the Federal Reserve had previously signaled a more hawkish stance.
Details revealed that two officials voted against the rate increase. The BOJ stated that despite the hike, an accommodative financial environment is expected to remain. The opposition from two policymakers weakened the yen, highlighting potential challenges for further tightening by the central bank.
Strategists noted that if investors perceive the BOJ’s tightening pace as lagging behind the Fed’s, the USD/JPY could climb toward 160. Given that markets had largely priced in the 25-basis-point hike ahead of time, any interpretation of Friday’s decision or subsequent communication as dovish would pose significant risks.
The latest decline has once again heightened concerns about intervention risks. Earlier this summer, Japan and the United States conducted their first joint yen-buying operation since 1998. Officials have consistently emphasized the speed and disorderliness of exchange rate movements rather than specific levels, but if the yen approaches 160 again, it may test their tolerance threshold.
According to data from Japan’s Ministry of Finance, government spending on monetary policy interventions reached a record high of 15.4 trillion yen (approximately $98.3 billion) over the month ending August 26. Since then, U.S. Treasury Secretary Scott Bessent has continued sending signals supporting a stronger yen, potentially encouraging traders to rebuild short positions.
Given Bessent’s recent remarks, the press conference by BOJ Governor Katsunori Ueda later Friday evening could carry greater significance for the yen and bond markets than usual.
If Ueda were to unexpectedly adopt a hawkish tone, it might give the impression that the BOJ is yielding to pressure from Bessent. Therefore, Ueda has strong incentives to communicate that the decision reflects the central bank’s own assessment. Otherwise, Bessent’s comments could exert a stronger influence on market expectations, increasing pressure on the BOJ to tighten monetary policy.
As a result, Ueda may adopt a more dovish tone in his messaging than usual, which could further weaken the yen.
