Forex
Yen trades near 158 per dollar as Bank of Japan heads into October meeting
The Bank of Japan raised its policy rate to 1.25% in September by a 7 to 2 vote and meets again on October 29 and 30. The yen has traded near 158 per dollar.
Key points
- The Bank of Japan lifted its target for the overnight call rate to around 1.25% on September 18, effective September 24, with two board members dissenting.
- The Bank said it "will continue to raise the policy interest rate" as underlying inflation approaches 2%, and flagged exchange rate developments as a risk.
- The next meeting on October 29 and 30 comes with a quarterly Outlook Report; markets priced an October increase at roughly one in four in early October.
The yen has been trading close to 158 per US dollar ahead of the Bank of Japan's policy meeting on October 29 and 30, a level near which Japanese authorities intervened to support the currency in 2024. The pair briefly dipped to around 157.5 on October 5 after remarks by Deputy Governor Shinichi Uchida before returning toward 158, according to a report by Investing Live.
The Bank raised rates at its last meeting. On September 18 the Policy Board decided by a vote of seven to two to guide the uncollateralized overnight call rate to around 1.25 percent, effective September 24, with the rate on the complementary deposit facility also set at 1.25 percent and the basic loan rate at 1.5 percent. Board members Toichiro Asada and Ayano Sato dissented, arguing that inflation excluding fresh food was below 2 percent and that economic conditions had not accelerated enough to justify a move.
The statement described Japan's economy as having "recovered moderately" despite some weakness linked to the Middle East, with consumer price inflation excluding fresh food in a range of 1.5 to 2.0 percent and underlying inflation "approaching 2 percent." The Bank said it "will continue to raise the policy interest rate and adjust the degree of monetary accommodation" in response to economic activity, prices and financial conditions, and named the Middle East, AI-related demand and "developments in foreign exchange rates" as the risks it is watching most closely.
The September summary of opinions, published on October 1, included the view that there was "no need to rush" further increases, and Investing Live reported in early October that markets saw an October move as the less likely outcome, with one estimate near one in four. The October meeting is one of the four each year at which the Bank publishes its Outlook for Economic Activity and Prices, which will update the inflation projections that underpin its guidance.
A weaker yen raises import costs, and the Bank cited it alongside crude oil prices and AI-related demand as a driver of high producer price inflation. With the Federal Reserve meeting two days earlier, the end of October is a crowded calendar for yen traders.