USDJPY Hits 134 After BOJ Holds Rates, Signals Policy Patience
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The Japanese yen strengthened notably on Thursday as the Bank of Japan (BOJ) held interest rates steady and reaffirmed its commitment to a gradual normalization path, pushing the USD/JPY pair down to 134.10 — its lowest level in nearly four months. The central bank maintained its benchmark short-term interest rate at 0.1%, in line with market expectations, but added a cautiously optimistic tone regarding Japan’s inflation and wage growth trajectory.
BOJ Governor Kazuo Ueda noted that inflation has become more “broad-based” and that wage increases are beginning to gain traction across multiple sectors. However, he emphasized that the central bank would maintain a patient approach to further tightening, keeping monetary support in place to ensure the recovery remains on track. The statement struck a balance between acknowledging progress and avoiding premature tightening that could disrupt Japan’s fragile growth.
The yen reacted immediately to the policy statement, gaining nearly 1.2% against the U.S. dollar. Currency traders had been anticipating a more dovish message, especially in light of recent global central bank moves toward easing. The BOJ’s relatively neutral tone caught some markets off-guard, especially as inflation in Japan has remained above the 2% target for the past nine consecutive months.
Meanwhile, the U.S. dollar saw modest weakness following the previous day’s CPI report, which showed inflation cooling more than expected. Combined with Fed officials signaling data-dependency and a possible pivot in coming months, the greenback came under broad pressure. The dollar index (DXY) briefly rebounded but failed to regain its footing above 100, further helping the yen gain ground.
Japan’s bond yields remained steady, with the 10-year JGB yield hovering near 0.80%. The BOJ reiterated its flexible yield curve control policy, stating that it would intervene if yields became too volatile. Equity markets in Tokyo responded positively, with the Nikkei 225 rising 0.6% on the day, supported by the currency’s stability and cautious optimism about domestic demand.
FX strategists now expect more upside potential for the yen in the short term, especially if the BOJ continues to hint at a possible policy shift in Q4. Some analysts are forecasting USD/JPY could test the 130 level by September if global risk sentiment holds and the dollar continues to weaken.
While the BOJ stopped short of tightening, Thursday’s message suggests a slow but steady pivot is underway. The yen’s renewed strength reflects not just BOJ policy but also broader shifts in global FX markets that are recalibrating around softer U.S. inflation and narrowing interest rate differentials.
