Japan FX Today: Japanese Yen holds steady, awaiting clarity from BoJ Minutes

Ahead of the Bank of Japan's (BoJ) eagerly-awaited Minutes, due to be published on Wednesday at 23:50 GMT, the Japanese Yen (JPY) is holding steady against the US Dollar (USD), with USD/JPY hovering around 147.70, showing no intraday trend.

The lack of a trend is also visible on wider time horizons, a sign that the market is still hesitant about the timing of the BoJ's next monetary move. For traders, the release of the Minutes could shed further light on the Bank of Japan's intentions, as the prospect of an October rate hike gains ground.

The Minutes, a detailed record of proceedings, review discussions at the September 18-19 meeting, where the BoJ held its key rate steady at 0.5%, but two Board members voted for an immediate hike to 0.75%.

This divergence within the Board is fuelling expectations of a historic turning point in the BoJ's ultra-accommodative policy, while the Minutes could confirm or affirm the importance of the voices in favour of normalization within the BoJ.

The Japanese economy between stabilization and global uncertainty

September's monetary policy status quo masks a gradual move towards normalization, as an analysis of the BoJ's internal debates suggests. Hajime Takata and Naoki Tamura, the two dissident members of the central bank, felt that the price stability objective had more or less been achieved, arguing for faster monetary tightening.

This view reflects an inflationary dynamic deemed more persistent than anticipated. The Japan’s Consumer Price Index (CPI) excluding fuel and fresh food remained above 3%, despite the slowdown in core CPI to 2.7% in August, due to Government subsidies.

BoJ Governor Kazuo Ueda stated at the September meeting that "inflation is moving towards 2%", while stressing the importance of remaining data-dependent. Ueda also acknowledged that uncertainties related to US tariffs and global growth remain high, although their impact on the Japanese economy remains limited at this stage.

According to Goldman Sachs, "the consensus within the BoJ remains cautious, but internal dissension marks a change in tone".

Indeed, the appointment of more hawkish members and the gradual stabilization of the Japanese economy pave the way for an interest rate hike as early as October, provided that future economic data remain solid.

Towards a BoJ rate hike in October? Timing under scrutiny

Money markets are increasingly taking on board the probability of a rate hike in October, now estimated at 52% by ING, compared with 34% at the beginning of September. 

For JP Morgan, "the surprise of the dissenting votes and the announcement of the reduction in risky assets show that the normalization process is well and truly underway". The American bank expects BoJ rates to exceed 1% in 2026, above the levels currently anticipated by the market.

But political risk is still a factor, particularly with the internal election of the Liberal Democratic Party (LDP) on October 4.

If a more accommodating figure, such as Sanae Takaichi, emerges, this could postpone or attenuate the scope of a monetary hike.

Technical analysis of USD/JPY: Uncertainty persists ahead of BoJ Minutes

USD/JPY 4-hour chart. Source: FXStreet.

Apart from a brief bullish attempt at the end of July and a bearish one last week, the USD/JPY pair has been moving without a clear trend in a wide horizontal range between 146.00 and 149.00 since July 8. The lack of a trend is underlined by a flat 100-period Simple Moving Average (SMA) on the 4-hour chart.

This SMA currently offers a support level at 147.63, whose breach could encourage a further test of the bottom of the range towards 146.00. However, traders will be watching for a significant breakthrough of the range in order to establish a new, clearer trend.

So, as long as USD/JPY remains within the range, lack of direction and caution are likely to prevail. The question now is whether the BoJ Minutes will contain sufficient surprises to provoke a strong move in the Japanese Yen or whether the pair will have to wait for the next Prime Ministerial election.

The publication of the BoJ's Minutes on Wednesday could offer decisive confirmation of a monetary turnaround in Japan. If they highlight a broad consensus in favor of a hike as early as October, this could strengthen the JPY’s recovery potential, particularly against a US Dollar weakened by Federal Reserve (Fed) policy.