USD/JPY Retreats from Two-Week High on BoJ Dovish Rate Hike

The USD/JPY pair retreated from its two-week high of 157.10 after the Bank of Japan's dovish rate hike. The BoJ lifted its short-term rate to a 31-year high, but the decision was not without controversy as it was a 7-2 vote split.

Data showing August inflation eased slightly tempered expectations for faster tightening, weighing on the yen and keeping the pair underpinned. Meanwhile, the dollar found support from Middle East tensions and the Fed's hawkish guidance, signaling at least one further rate rise this year.

Technically, resistance sits at the 200-period SMA on the 4-hour chart at 157.61 and the 61.8% Fibonacci level at 157.49. A break above these levels could open up 158.75 and potentially 160.36. On the downside, supports lie at 156.60, 155.72, 154.62, and 152.85.

The risks of intervention are high, given the Japanese government's previous record-breaking $62 billion intervention to defend the currency during similar slides. To manage risk, purchasing out-of-the-money put options on USD/JPY may be considered.