The USD/JPY pair experienced selling pressure, dropping below the critical 150.00 level during the Asian trading session on Thursday. The pair is currently trading around 148.90, marking a 0.71% decline for the day. This movement is influenced by the Federal Reserve’s (Fed) dovish stance and an unexpected rate hike by the Bank of Japan (BoJ).
Following two days of discussions, the Fed decided to keep its key lending rate unchanged at 5.25%-5.50% on Wednesday. However, Fed Chair Jerome Powell indicated that the first interest rate cut could occur “as soon as” the next Fed meeting in September if economic data align with their expectations.
This rising anticipation of a Fed rate cut is expected to weaken the U.S. Dollar against the Japanese Yen (JPY). Futures traders, according to the CME FedWatch Tool, are now fully pricing in a September rate cut.
Conversely, the BoJ made a significant move by raising its short-term policy rate to 0.25%, up from the previous range of 0-0.1%, marking the largest hike since 2008. Additionally, the BoJ announced plans to taper its purchases of Japanese government bonds to about 3 trillion yen ($19.64 billion) per month from January to March 2026.
BoJ Governor Kazuo Ueda did not dismiss the possibility of another rate hike this year. He stated, “If the economy and prices move in line with our projection, we will continue to raise interest rates. In fact, we haven’t changed much our projection from April. We don’t see 0.5% as any key barrier when raising rates.” Ueda’s hawkish remarks have strengthened the Japanese Yen, posing challenges for the USD/JPY pair.
Later today, traders will closely watch the release of the US Manufacturing PMI data for July and the weekly Initial Jobless Claims, which could further influence market dynamics.
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