The Bank of Japan is broadly expected to keep its policy rate at 0.5% during its meeting on September 19, 2025. The future economic outlook remains cautious because of political uncertainty within Japan and challenges from international trade.
The value of the US dollar against the Japanese yen will mainly be affected by the Federal Reserve’s interest rate cut. The Bank of Japan’s meeting will also have an impact, but it will likely be less significant. However, if Governor Ueda says something unexpected, it could cause a major rise in the value of the yen, breaking its current trading range of 147 to 149.
The Anticipated Bank of Japan Policy Decision: Maintaining the Status Quo
The Bank of Japan (BOJ) is expected to keep its interest rate at 0.5% this week, a rate it has held since January. This cautious, “wait-and-see” approach is due to a few key reasons.
First, there is political uncertainty in Japan, and the central bank wants to avoid making any sudden policy changes that could cause more economic instability. Second, the BOJ is still evaluating the full impact of a new U.S.-Japan trade deal and U.S. tariffs, which are hurting Japanese exports.
Interestingly, the BOJ is prioritizing economic stability over controlling inflation, even though inflation is running high and outpacing wage growth. This difference between the central bank’s policy and the domestic inflation reality could potentially lead to market problems in the future.
Forward-Looking Monetary Policy: The Outlook Beyond September
The market expects the Bank of Japan to keep its interest rate unchanged in September but believes they will start raising rates soon. Many traders think there’s a strong chance of a rate hike before the end of 2025 and more hikes by the middle of next year.
Source LSEG
Looking at the implied rates based on LSEG data, we can see markets are pricing in around 50 bps of cuts through December 2026. Now this may not seem like a lot, but it is the BoJ we are talking about.
Since no new forecasts will be released at the meeting, the market’s reaction will depend entirely on what Governor Kazuo Ueda says at his press conference.
The Bank of Japan is known for its vague communication. If Governor Ueda continues to be vague, the market will likely have a small reaction. However, if he sounds surprisingly direct about future rate hikes, it would confirm the market’s aggressive expectations. Because of this, his words could cause a large and sudden shift in the market.
The Dual-Central Bank Catalyst: Impact on USD/JPY
The value of the U.S. dollar against the Japanese yen is primarily driven by the U.S. Federal Reserve’s policies. When investors expect the Fed to cut interest rates, the dollar typically falls against the yen. This is especially relevant this week, as a Fed rate cut has been delivered as expected.
The market generally expects the US to cut rates while Japan eventually raises them, a situation that would likely cause the dollar to weaken against the yen. While the Bank of Japan’s decision is also important, its effect will be largely shaped by the Fed’s actions. The Fed’s influence on the currency pair is much stronger.
Given that market expectations are for 50 bps of rate cuts from the Fed before the year-end on top of the 25 bps delivered this week, the Yen could be poised for gains moving forward over the medium term.
Source: Google Gemini
Technical Analysis USD/JPY
USD/JPY from a technical standpoint has been giving signs of a bullish rally, but the potential effects of rate differentials could come into play.
On a weekly timeframe, the long-term descending trendline had been broken a while ago and since then USD/JPY has been trapped in a range between 145.00 and 150.00 handle with a brief foray higher being met by swift selling pressure.
There is also an ascending trendline from the April lows just below the 140.00 handle.
The daily candle has closed as a hammer candlestick bouncing of the trendline and the 100-day MA at 146.21.
Immediate resistance is provided by the 50-day MA which rests at 147.67 before the 200-day MA at 148.62 comes into focus.
A break of the ascending trendline could lead to a push toward the 145.00 handle before the swing low at 143.33 comes into focus.
USD/JPY Daily Chart, September 17, 2025
Source: TradingView
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