USD/JPY Plunges Amid Hawkish Fed Tone and Persistent Policy Gap

The USD/JPY pair declined after the Federal Reserve's decision to hold its target range at 3.50% to 3.75%, despite a highly hawkish undertone from the 9-3 vote.

The dissenting votes, which favored a quarter-point rise, caused futures to unwind their priced hike tail of about 36%, down from around 11% in mid-July.

This led to a decrease in USD/JPY, with prices easing from just under 164.00 to the 163.50 area and later dipping below 163.00 before recovering near 163.50 and down 0.24% overall.

The policy gap between the US and Japan remains wide, with the Bank of Japan holding its rate at 1.00% while underlying inflation is near 2.8%, contributing to a steeper curve dynamic for the pair.