The Bank of Japan did exactly what the market expected, raising the interest rate by 25 basis points to 1.25%, the highest level since 1995. In a textbook scenario, such tightening should support the currency. Meanwhile, the yen reacted with a weakening, and the USDJPY pair dynamically returned above the 157 barrier. This is the best proof that the market cares today not about the decision itself, but about the signal regarding the future path, and this one turned out to be disappointingly dovish.
Two Dissenters Ruin the Narrative
The key is the vote breakdown, which was 7 to 2. Voting against the hike were Toichiro Asada and Ayano Sato, the two newest board members nominated by Prime Minister Sanae Takaichi, known for their favorability toward loose monetary and fiscal policy. The market read this unambiguously. Two distinct camps emerged within the Bank of Japan, and the bank is less united on the pace of further tightening than assumed just a few days ago. The bar for further moves has just risen, and the hawkish tone of the statement was effectively diluted by the mere existence of the split.
Fed Wins the Rhetoric Duel
The background remains relentless for the yen. Two days earlier, the Fed not only raised rates but, through Kevin Warsh, communicated a hard stance in the spirit of "higher for longer," driving US bond yields toward 5 percent. The effect is simple. The rate divergence between the United States and Japan still strongly favors the dollar, and carry trade—borrowing cheap yen to invest in higher-yielding assets abroad—remains attractive. A hawkish Fed paired with a less hawkish BoJ is a simple recipe for a weak yen, even despite the formal hike in Tokyo.
BoJ Forecasts: The Paradox of a Weak Currency
It is worth looking deeper into the bank's projections, because that is where the biggest paradox lies. The BoJ forecasts that core inflation, excluding fresh food, will accelerate clearly above 2 percent from the second half of fiscal year 2026, driven by the pass-through of earlier oil price increases, rising semiconductor and AI-boom-related components, and, most importantly, yen depreciation translating into durable goods prices. The bank expects inflation to return to the 2 percent target only later in the forecast horizon. Additionally, there are rising inflation expectations and the risk that companies will increasingly boldly raise wages and prices.
Technical Analysis and Z-Score
On the USDJPY daily chart, quotes around 157.2 have just broken above the 38.2 percent Fibonacci retracement at 157.15, determined for the downward move from the 164.07 to 152.87 region. Maintaining above this level opens the way toward the 50 percent retracement at 158.47, and then the key 61.8 percent resistance in the 159.79 region. This is where the barrier deciding on the return to the broader upward trend runs. Support remains at the 23.6 percent retracement at 155.51, the breach of which would direct attention back toward the lows around 152.87.
Macro Calendar – Dovish BoJ Pivot and Key Data from Europe and the US
📊Morning Briefing: BoJ raises rates, but the yen paradoxically weakens (18.09.2026)
Daily Summary: Hawkish Fed fails to scare the markets (17.09.2026)
Nasdaq 100 Up 1.7%
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.