The USD/JPY pair shows strength, reaching approximately 156.75 during the early Asian session on Friday. The measured approach of the BoJ regarding monetary tightening exerts pressure on the Japanese Yen, providing a favorable environment for the pair. The potential for a US rate cut, along with worries regarding the Fed’s independence, could limit the upward movement for USD/JPY. The USD/JPY pair advances to approximately 156.75 in the early hours of the Asian session on Monday. The Japanese Yen weakens against the US Dollar as market participants express disappointment over the Bank of Japan’s gradual and careful approach to monetary tightening.
The BoJ increased its policy rate to 0.75% from 0.50%, marking the highest level in 30 years, during its December policy meeting. However, the Japanese central bank did not provide specific guidance on the pace of future hikes, leading to market disappointment and putting pressure on the JPY. Conversely, projections indicate that the US Federal Reserve is likely to implement additional interest rate cuts in 2026, while US President Donald Trump advocates for a more accommodative approach from the central bank leadership. This could potentially weaken the Greenback relative to the JPY.
Trump expressed his expectation that the forthcoming Fed Chairman will maintain low interest rates and will not “disagree” with him. The remarks are expected to amplify apprehensions among stakeholders regarding the autonomy of the Federal Reserve. “The biggest factor for the dollar in the first quarter will be the Fed,” stated Yusuke Miyairi. “And it’s not just the meetings in January and March, but the question of who will succeed Jerome Powell as Fed Chair after his term concludes,” Miyairi added.
The Federal Reserve implemented three rate cuts in 2025, and market participants are expecting two additional cuts this year. The financial markets are currently reflecting an approximate 18.3% probability that the Federal Reserve will reduce interest rates during its upcoming meeting in January, as indicated.