USD/JPY Rebounds on Fed and BoJ Rate Hikes, But Intervention Risk Lingers

The USD/JPY currency pair has rebounded sharply from its September lows near 153, reaching above 157 in a surprising move given the simultaneous rate hikes by the Federal Reserve and Bank of Japan.

The Fed raised its fed funds target range by 25 basis points to 3.75-4.00%, with the decision seen as more consequential than the hike itself due to updated projections that lifted the median expected fed funds rate for the end of 2026 to 4.1% from 3.8% in June.

The Bank of Japan, on the other hand, delivered a 25bp increase but saw the yen weaken sharply instead of strengthening, with USD/JPY briefly climbing above 158. This was attributed to the BoJ's relatively dovish signal, which allowed investors to interpret what was objectively a rate increase as one that may not lead to further acceleration in normalisation.

Despite this, the interest-rate differential remains wide enough to support the dollar, and intervention risk is still present due to Japanese authorities' limited tolerance for rapid yen weakness. The technical chart reflects this two-sided fundamental backdrop, with USD/JPY testing the 157-158 region as a near-term battleground.