In the morning trading in Europe, the US dollar showed slight strength, supporting its earlier rise. Initially, USD/JPY fell to 147.20 during Asian trading, but buyers stepped in to defend the 200-hour moving average. However, the yen weakened after BOJ Governor Ueda’s press conference. The Bank of Japan voted 7-2 to keep interest rates unchanged, with one dissenting member calling for a 25 basis point increase. This split in votes indicates a more hawkish outlook for the BOJ than usual. Ueda tried to downplay the division, mentioning that only two board members wanted a rate hike, while the majority favored a data-driven approach.

US Dollar Strengthens

USD/JPY climbed from 147.50-60 to 147.90, boosted by the dollar’s strength. The EUR/USD fell 0.2% to 1.1757, and GBP/USD dropped 0.5% to 1.3490, as the dollar held onto its overnight gains amid overall market reactions to the Fed. Currently, USD/JPY is bouncing between important levels, waiting for a decisive move to create a stronger trend. Market conditions hint at a potential shift, but it’s hard to predict when that will happen. The split within the Bank of Japan is an important indicator. With two members favoring a rate hike, there’s evident internal pressure to normalize policy. While Ueda may be trying to stabilize the market, this dissent shouldn’t be overlooked. A surprise move could be possible in the coming months. This hawkish division is a response to ongoing inflation. Recent data from August 2025 showed Japan’s core CPI at 2.8%, remaining above the BOJ’s 2% target for over a year. This data supports the dissenters’ argument and makes Ueda’s cautious stance less believable for the medium term.

Fed Influence on US Dollar

Meanwhile, the US dollar remains strong after the Fed’s recent meeting. The Fed decided to keep rates steady but indicated a “higher for longer” approach, leading to elevated US bond yields that support the dollar. This creates a tug-of-war for the USD/JPY pair, keeping it within its current range. We’ve seen similar situations before, especially before the policy change in March 2024, when the bank ended negative rates. Prior verbal interventions and minor dissent led to spikes in implied volatility. Right now, 1-month implied volatility for USD/JPY is around 9.8%, and we can expect it to rise as confidence in Ueda’s patient stance weakens. For traders, this implies that selling volatility with strategies like short strangles could be risky, as the pair is poised for a breakout. A better approach might be to buy options to prepare for that move, such as purchasing out-of-the-money USD/JPY call options if prices dip below 147. This could yield profits from a sudden upward movement, driven by either a persistently strong dollar or a delayed BOJ action. It’s crucial to monitor the next major data releases, especially Japan’s upcoming wage negotiation figures and the next inflation report. Any positive surprise in that data could undermine Ueda’s position and catalyze a break from the current stalemate. We should set our positions to anticipate a sharp move instead of a continued range. Create your live VT Markets account and start trading now.

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