USD/JPY Plunges to Seven-Month Low Amid US Inflation and BoJ Rate Hike Uncertainty

The USD/JPY currency pair has hit a seven-month low as traders await key economic data from the US and potential rate hikes from the Bank of Japan.

While some market observers worry about a repeat of the 2024 global carry-trade unwind, the BoJ's efforts to prepare markets for higher rates suggest that any move next week would not be entirely surprising.

However, a rate hike combined with guidance on further tightening could increase the risk of a sharp yen depreciation.

The Japanese currency is also supported by potential government intervention and domestic repatriation flows. Tokyo's recent yen-buying operations, which cost approximately ¥15.4 trillion ($99 billion), have helped push the yen away from levels near 164 per dollar.

Fitch Ratings expects Japanese policy rates to rise faster than current market consensus in 2026 and 2027, citing higher domestic yields as a reason for reduced foreign asset purchases by Japanese institutions.