USD/JPY fell more than 300 pips on Friday on suspected “interest rate controls” by the Japanese Ministry of Finance (MoF), as excessive weakening of the yen (JPY) fuels concerns about intervention. At the time of writing, the pair is trading around 156.18, down almost 1.40% on the day and hitting its lowest level since slow December.
At the same time, the widespread weakening of the US dollar (USD) is increasing downward pressure as concerns about the independence of the Federal Reserve (Fed) and US President Donald Trump’s protectionist trade policies continue to undermine confidence in the US dollar, despite the recent easing of trade tensions between the US and the European Union (EU).
The US Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is trading around 98.76, hovering near its lowest level since October 3.
Meanwhile, the Bank of Japan (BoJ) announced its policy decision earlier on Friday, leaving its key interest rate unchanged at 0.75%, as widely expected, by a majority vote of 8 to 1. Board member Hajime Takata disagreed and favored a 25 basis point boost to 1.00%.
Apart from the interest rate decision, the BoJ adopted a cautiously hawkish tone in its updated Outlook Report. The central bank said Japan’s economy was likely to continue growing moderately. Although headline inflation is expected to decline below 2% in the first half of the year, the BoJ still believes core inflation will gradually strengthen over the rest of the period.
The bank reaffirmed its tightening stance, noting that “real interest rates are at significantly low levels” and that if the forecast proves correct, it “will continue to raise policy rates.”
Attention now turns to US monetary policy, with markets anticipating the FOMC meeting scheduled for January 27-28. The Federal Reserve is widely expected to leave interest rates unchanged in the 3.50%-3.75% range.
However, investors are still pricing in two interest rate cuts later this year, which continues to keep the US dollar on a downward trend.
Economic indicator
Fed’s interest rate decision
The Federal Reserve (The Fed) deliberates on monetary policy and decides on interest rates at eight previously scheduled meetings per year. It has two tasks: to keep inflation at 2% and to maintain full employment. Its main tool for achieving this goal is setting interest rates – both those at which it lends to banks and those at which banks lend to each other. If it decides to boost interest rates, the US dollar (USD) will strengthen as it attracts a greater inflow of foreign capital. If it cuts interest rates, it will typically weaken the dollar as capital flows to countries offering higher yields. If rates remain unchanged, attention will focus on the tone of the Federal Open Market Committee (FOMC) announcement and whether it will be hawkish (expecting higher interest rates in the future) or dovish (expecting lower interest rates in the future).
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Next release:
Wed 28 Jan 2026 19:00
Frequency:
Irregular
Agreement:
3.75%
Previous:
3.75%
Source:
Federal Reserve
