🏯Chart of the Day: Yen in a Trap. BoJ Hike That Weakened the Currency (18.09.2026)

The Bank of Japan did exactly what the market expected, raising the interest rate by 25 basis points to 1.25%, the highest level since 1995. In a textbook scenario, such tightening should support the currency. Meanwhile, the yen reacted with a weakening, and the USDJPY pair dynamically returned above the 157 barrier. This is the best proof that the market cares today not about the decision itself, but about the signal regarding the future path, and this one turned out to be disappointingly dovish.

Two Dissenters Ruin the Narrative

The key is the vote breakdown, which was 7 to 2. Voting against the hike were Toichiro Asada and Ayano Sato, the two newest board members nominated by Prime Minister Sanae Takaichi, known for their favorability toward loose monetary and fiscal policy. The market read this unambiguously. Two distinct camps emerged within the Bank of Japan, and the bank is less united on the pace of further tightening than assumed just a few days ago. The bar for further moves has just risen, and the hawkish tone of the statement was effectively diluted by the mere existence of the split.

Fed Wins the Rhetoric Duel

The background remains relentless for the yen. Two days earlier, the Fed not only raised rates but, through Kevin Warsh, communicated a hard stance in the spirit of "higher for longer," driving US bond yields toward 5 percent. The effect is simple. The rate divergence between the United States and Japan still strongly favors the dollar, and carry trade—borrowing cheap yen to invest in higher-yielding assets abroad—remains attractive. A hawkish Fed paired with a less hawkish BoJ is a simple recipe for a weak yen, even despite the formal hike in Tokyo.

BoJ Forecasts: The Paradox of a Weak Currency

It is worth looking deeper into the bank's projections, because that is where the biggest paradox lies. The BoJ forecasts that core inflation, excluding fresh food, will accelerate clearly above 2 percent from the second half of fiscal year 2026, driven by the pass-through of earlier oil price increases, rising semiconductor and AI-boom-related components, and, most importantly, yen depreciation translating into durable goods prices. The bank expects inflation to return to the 2 percent target only later in the forecast horizon. Additionally, there are rising inflation expectations and the risk that companies will increasingly boldly raise wages and prices.

Technical Analysis and Z-Score

On the USDJPY daily chart, quotes around 157.2 have just broken above the 38.2 percent Fibonacci retracement at 157.15, determined for the downward move from the 164.07 to 152.87 region. Maintaining above this level opens the way toward the 50 percent retracement at 158.47, and then the key 61.8 percent resistance in the 159.79 region. This is where the barrier deciding on the return to the broader upward trend runs. Support remains at the 23.6 percent retracement at 155.51, the breach of which would direct attention back toward the lows around 152.87.

Statistical analysis based on the z-score—the price deviation from its averages in terms of standard deviations—provides interesting conclusions. In each of the examined horizons, from 75 sessions, through one and two years, to five years, the indicator is currently in the neutral zone. The short-term 75-session z-score is minus 0.82, meaning the price is slightly below its recent average, signaling a pause rather than exhaustion of the move. On the other hand, the two-year z-score at 0.69 and the five-year z-score at 1.05 confirm that in the long term, the exchange rate remains above averages, and the structural yen weakening trend remains in force. In other words, we are not dealing with extreme overbought or oversold conditions, which leaves room for the continuation of the upward move without the risk of an immediate, sharp reversal.

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One salvation remains for the yen. Ueda would have to present a significantly more hawkish perspective in the near future, which could negate the impact of the two dovish BoJ members. Without this support, in the face of such a strong Fed, the Japanese currency may struggle with a lasting strengthening.