USD/JPY: Yen trades at 1-week high ahead of BoJ decision as Fed hikes

Key points

The Japanese Yen was holding gains against a weaker US Dollar on Thursday, after the Federal Reserve delivered the 11th rate hike in its last 12 policy meetings.

The US central bank raised the target range for the federal funds rate by 25 basis points to 5.25%-5.50% on Wednesday, in line with investor expectations.

This way, borrowing costs were brought to their highest level since January 2001.

The Federal Reserve resumed its rate-hiking campaign after a June pause, as it noted the economy had been growing at a moderate pace, employment growth had been robust in recent months, the unemployment rate had remained low and inflation rate had remained elevated.

Despite that Fed Chair Jerome Powell did not close the door to another rate increase in September, some speculated that July’s hike could be the last in the Fed’s tightening cycle.

“The U.S. is closer to the end of the hiking cycle than its peers. A dovish pivot from the Fed will likely exert a downward pressure on the U.S. dollar in the medium term,” Emin Hajiyev, senior economist at Insight Investment, was quoted as saying by Reuters.

Even as the dollar weakened, Japan’s Yen was still under pressure ahead of the Bank of Japan’s monetary policy decision tomorrow.

The BoJ is largely expected to keep its short-term interest rate without change at -0.10% against the backdrop of rising rates in other major economies.

“Changes to the policy rate and an end to quantitative easing still are far off based on the communication of the BOJ,” Gregor Hirt, global chief investment officer for multi asset at Allianz Global Investors, said.

“We would thus expect the accommodative policy to continue for the time being.”

As of 7:45 GMT on Thursday USD/JPY was edging down 0.25% to trade at 139.891. During the early phase of the Asian trading session, the major Forex pair went down as low as 139.378. The latter has been the pair’s weakest level since July 20th (139.107).