Forex
Yen trades near 158 per dollar as Bank of Japan prepares for policy pause
The Japanese yen hovered near 158 per dollar ahead of the Bank of Japan's policy meeting, with markets expecting rates to hold at 1.25% as import costs climb.
Key points
- USD/JPY traded near 158 ahead of the Bank of Japan's two-day policy meeting concluding October 30.
- Governor Kazuo Ueda indicated the central bank is unlikely to deliver consecutive rate hikes following its September move to 1.25%.
- Surging crude oil prices above $115 a barrel continue to inflate import costs for Japan's economy.
The Japanese yen hovered near 158 per dollar heading into the final week of October, remaining under persistent selling pressure despite the Bank of Japan's historic shift toward monetary policy normalization.
The central bank convenes for a two-day monetary policy meeting on October 29 and 30, accompanied by its quarterly Outlook Report. Market participants broadly expect the Policy Board to leave its uncollateralized overnight call rate target unchanged at 1.25 percent, following a 25-basis-point increase in September that took borrowing costs to their highest level since 1995.
Recent remarks from Governor Kazuo Ueda reinforced expectations of a policy pause. Ueda signaled caution regarding the domestic consumption recovery and suggested that back-to-back rate increases remain unnecessary unless underlying inflationary momentum accelerates beyond forecasts. Core consumer inflation stood at 2.8 percent in September, remaining above the central bank's 2 percent target for the 30th consecutive month.
External pressures continue to weigh heavily on the currency. International crude oil benchmarks surged past 115 dollars a barrel last week, driving up energy import expenses for resource-dependent Japan and widening its trade deficit. At the same time, wide interest rate differentials with the United States continue to incentivize capital outflows into higher-yielding dollar assets.
Foreign exchange market participants remain alert to potential intervention by the Ministry of Finance if the yen weakens further past recent multi-decade lows. The central bank will publish its policy decision alongside updated economic growth and inflation forecasts on Friday, October 30.
