Yen Plummets Below 156 as Fed Hike Raises Pressure on BOJ

The yen plummeted overnight to 156.42 per dollar after the Federal Reserve's hawkish rate hike, leaving the Bank of Japan under immense pressure to raise interest rates and send hawkish signals.

Strategists warn that unless officials convince the market of further monetary tightening, the yen may continue to weaken.

The sharp decline in the yen followed the Fed's first interest rate hike since 2023 on Wednesday, which signaled further increases. Markets are now pricing in a 25-basis-point rate hike by the Bank of Japan on Friday, but if the central bank's stance proves dovish, the currency could test levels of 158 or even 160.

Glenn Yin from ACCM in Melbourne stated that 'Japan is undoubtedly under immense pressure to raise interest rates and send hawkish signals to minimize losses.' Rinto Maruyama from SMBC Nikko Securities noted that the yen's renewed downtrend gives the Bank of Japan greater reason to emphasize upside risks to inflation.