Dollar Soars as Fed Hike and BOJ Expectations Collide

The USD/JPY currency pair saw significant gains on Thursday, surging towards ¥156 as the dollar reached a seven-week high against a basket of major currencies. This upward momentum can be attributed to the Federal Reserve's decision to hike its policy rate by 25 basis points to 3.75%, 4.00%, marking its first increase since 2023.

The Fed's move, which was unanimously approved, has restored some of the dollar's yield advantage and made dollar-denominated assets more attractive. This, in turn, has put upward pressure on the dollar-yen pair. The yen has lost approximately 300 pips in just three days, with markets placing a roughly 80% probability on the Bank of Japan's (BOJ) expected rate hike from 1.00% to 1.25% on Friday.

While the BOJ's move is priced, Governor Kazuo Ueda's press conference will be closely watched for any signals regarding inflation risks and potential future increases in the policy rate. Economists expect the policy rate to reach 1.5% by March 2027 and 1.75% during the following quarter.

The ¥156 area is seen as a crucial resistance zone, with initial support sitting around ¥155. A sustained move above ¥156 could strengthen the dollar's momentum, but it would also increase the risk of sharper warnings or action from Japanese authorities.