Japanese Yen holds steady near 158.00 as BoJ's Ueda says underlying inflation close to target

USD/JPY steadies near 158.00 in Monday’s early European session.
BoJ’s Governor says underlying inflation is "quite close" to the central bank's 2% target.
Fed Chairman Warsh says he does not "prejudge meetings.

The USD/JPY pair trades on a flat note around 158.00 during the early European session on Monday. Traders scale back Federal Reserve (Fed) rate hike bets despite hot US inflation data. The Japan’s National Consumer Price Index (CPI) inflation data will take center stage later on Friday.

Bank of Japan (BoJ) Governor Kazuo Ueda said on Monday that underlying inflation is "quite close" to the central ‌bank's 2% target, with strong global AI demand adding to inflationary pressure from a tight job market, signalling scope for further rate increases.

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Ueda added that lifting interest rates at an appropriate pace would help avoid spikes in bond yields. Many market players expect the Japanese central bank to leave interest rates unchanged at 1.25% but drop hints that leave open scope for a hike to 1.5% as ‌early as December, according to Reuters.

At the IMF annual meetings in Bangkok on Friday, Fed Chair Kevin Warsh offered no clues about future rate decisions. “We removed a dose of accommodation about a month ago,” said Warsh. “I don’t prejudge meetings. I don’t believe in saying now what I might do at the meetings that we have in the balance of this year,” he added.

Fed funds futures are pricing an implied 83.9% chance that the Fed will hold rates steady at its next two-day meeting on October 28, little changed from Friday, according to the CME Group's FedWatch tool.

BoJ tone turns firmer as Ueda flags inflation progress and yield risks

Analysts at Danske Bank highlight a firmer tone from the Bank of Japan, noting that Governor Kazuo Ueda now judges underlying inflation to be "quite close" to the 2% target, supported by tight labour markets and strong global AI demand as sources of price pressure. Danske adds that Ueda "warned that failing to raise rates at an appropriate pace could push long-term bond yields higher," underscoring the risks of moving too slowly. Looking ahead to the BoJ’s next meeting, which concludes on 30 October 2026, the bank points out that markets expect policy rates to remain at 1.25%, but will be watching closely for any guidance that keeps a hike to 1.5% as early as December "on the table."

Ueda leans mildly hawkish as inflation loop firms and JGB guidance stays cautious

FXS Speechtracker at 7/10 is slightly below Ueda’s 7.4/10 average, but the emphasis on “underlying inflation near 2%” and a “positive loop” of wages, prices, and robust global demand marks a mild hawkish tilt versus past caution. The focus on anchoring core inflation near 2%, demand-led price gains, and a tight labor market suggests the Bank of Japan is more confident that the 2% goal is becoming sustainable, which is Yen-supportive at the margin.

At the same time, Ueda stresses no shift in the fundamental bond taper approach and refuses to preannounce emergency JGB operations, signaling a desire to let long-term yields rise “steadily” alongside any future policy-rate hikes. The message that accommodative conditions will persist, but that miscalibrated policy could push long-term rates higher, frames a gradual normalization path that can underpin the Yen while keeping JGB volatility contained, limiting an immediate bullish impulse for the currency.

Technical Analysis: Negative tone of USD/JPY remains intact under the 100-day SMA

In the daily chart, USD/JPY holds a capped tone as spot remains below the 100-day simple moving average (SMA) despite stabilizing above the 20-day Bollinger SMA. The pair has rebounded from the lower band, but the upper band and the nearby 100-day SMA overhead suggest rallies are likely to meet supply, while the Relative Strength Index (RSI) at 52.35 points to only modest, neutral-to-slightly positive momentum.

On the topside, immediate resistance aligns first at the upper Bollinger band near 158.85, followed by the 100-day SMA at 159.45, a level that would need to be reclaimed to ease the broader downside pressure. On the downside, initial support is seen at the 20-day Bollinger SMA around 158.00, with a break exposing the lower band support at 157.10, where a deeper pullback could attempt to stabilize.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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