Dollar Surges as BoJ's Dovish Hike Ignites Yen Selling

The US dollar has had an eventful week, and it's not over yet. The Fed was hawkish in its decision, but then the Bank of Japan (BoJ) hiked rates by 25 basis points, surprising markets with a 7-2 vote. This dovish hike sent the Japanese currency lower, causing yen pairs to surge across the board.

The BoJ's guidance lacked urgency, which was enough to knock the yen down. The USD/JPY pair surged over 1% and climbed above the 158.00 handle, testing a key area of resistance between 158.00 and 158.50. Underlying inflation is approaching 2%, and medium- and longer-term inflation expectations are rising.

However, policymakers seem reluctant to give markets confidence that another hike is imminent due to concerns about the economic impact of the oil shock. For now, the pressure remains on the currency, and if USDJPY breaks through resistance, a revisit of 160.00 could be on the cards.