USD/JPY Volatility Peaks Ahead of BOJ Policy Decision

The USD/JPY currency pair saw significant volatility on September 17 as investors adjusted their positions ahead of the Bank of Japan's upcoming policy decision.

Following the Federal Reserve's quarter-point rate hike, the US dollar initially gained strength but then lost momentum as global markets focused on Tokyo. Market participants increasingly priced in a high probability of a benchmark rate increase by the Bank of Japan, with expectations that Japanese policymakers would raise interest rates and offer hawkish guidance.

The prospect of incremental policy convergence and a desire to de-risk short-yen positions provided underlying support for the Japanese yen. Front-end rate differentials and institutional capital flows also favored the yen during the trading session.