USD/JPY holds near eight-month peak as Fed, BoJ rate decisions loom

The Japanese Yen (JPY) extends its decline against the US Dollar (USD) on Monday, with USD/JPY revisiting the eight-month peak reached earlier this month. At the time of writing, the pair trades around 153.00, marking a seven-day winning streak despite a subdued Greenback. The Yen remains the worst-performing G10 currency so far this month, weighed down by political and fiscal developments in Japan.

The Yen remains under pressure as investors brace for the Bank of Japan's (BoJ) interest rate decision on Thursday. The central bank is widely expected to keep its benchmark rate unchanged at 0.50%, as policymakers assess economic conditions and the potential impact of Prime Minister Sanae Takaichi’s proposed fiscal stimulus package. Markets view the additional government spending as a reason for the BoJ to stay cautious, reducing the need for further near-term rate hikes.

Swaps markets assign only about 11% probability of a 25-basis-point (bps) rate hike this week but see nearly 50% odds of a move by December, with a full quarter-point increase priced in by the first quarter of 2026.

On the US side, attention turns to the Federal Reserve’s (Fed) two-day FOMC meeting, beginning on Tuesday. Markets are nearly certain the Fed will cut rates for the second time this year after a quarter-point reduction in September, the first since December 2024. Officials then described that move as a “risk-management cut,” aimed at cushioning the economy as downside risks to the labor market grew.

The ongoing US government shutdown has delayed the release of key employment data, limiting visibility on labor conditions. However, last week’s softer-than-expected Consumer Price Index (CPI) report strengthened expectations for continued monetary policy easing. Markets are pricing a 25-basis-point cut on Wednesday, with growing speculation of another move in December.

With both central banks meeting this week, volatility in USD/JPY may pick up. The pair remains biased to the upside as long as the Fed proceeds with gradual rate cuts and the BoJ stays cautious amid fiscal expansion and sluggish wage growth.