Fed Rate Hike Cuts Yen Rally Short

The Japanese Yen's recent rally has come to an end as the Federal Reserve raised interest rates. The Bank of Japan is expected to raise its policy rate by a quarter-point to 1.25% on Friday, but the market has already priced in this move.

The USD/JPY pair has been rising for three sessions in a row, with Wednesday's gain being the largest of the three. The pair is currently trading just under 156.50 after the Fed's hike to 3.75-4.00%.

This brings the pair roughly halfway back from its September low near 153.00 to where it started the month near 160.00. Despite the central banks' rate hikes, the gap between their policy rates remains relatively small, at about two and five-eighths points.