The yen’s sharp drop after the Federal Reserve’s hawkish hike is raising the stakes for the Bank of Japan’s policy meeting Friday, with strategists warning the currency could weaken further unless officials convince markets that more tightening is coming. The Fed lifted borrowing costs Wednesday for the first time since 2023 and projected further increases, prompting traders to price three additional hikes by the middle of next year. That threatens to keep the U.S.-Japan rate gap wide even as the BOJ is expected to raise its own policy rate this week.
The yen weakened as much as 1% overnight to 156.42 per dollar in the wake of the Fed move. The reversal comes after a sharp rally earlier this month, fueled by expectations of faster BOJ tightening, an unwind of yen-funded carry trades and speculation that Japanese pension funds could shift more money to domestic assets.
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