ING’s Frantisek Taborsky reports that the Bank of Japan delivered a 25bp hike to 1.25% in a split decision, acknowledging persistent inflation risks but with notable dissent. The Yen weakened after the dovish statement, and ING continues to see upside risks for USD/JPY, with a move towards 157–160 possible in coming weeks if elevated Oil prices persist and the Federal Reserve hikes again.
Dovish BoJ and Fed support Dollar
"The Bank of Japan has raised its key rate by 25bp to 1.25% in a split vote, with Toichiro Asada and Ayano Sato dissenting. Japan’s core inflation measure remained above 2% throughout 2025, and the BoJ expects inflation to stay above target in the coming years. The decision therefore acknowledges persistent upside inflation risks."
"However, Friday’s data showed inflation easing slightly in August, partly because of subsidy-related distortions. The two dissenting board members, appointed by Prime Minister Sanae Takaichi, argued that without a renewed pick-up in inflation, a rate hike at this meeting was unnecessary. Their dissent could make it harder for the board to reach consensus on another hike this year."
"The yen weakened to 157.11 against the dollar, around one yen above its pre-decision level, as the statement offered little additional hawkish guidance to support bullish JPY positions. The dissent from Asada and Sato points to resistance against the fastest pace of rate increases in more than three decades and suggests they may increasingly act as a brake on further tightening."
"Today’s dovish surprise also underscores the high bar set by the Fed this week. We continue to see upside risks for USD/JPY, with a move back towards 157-160 possible in the coming weeks if oil prices remain elevated and the Fed hikes again as early as October."
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