USDJPY Bank of Japan Raise Interest to 0.75% and Confirm High Cycle – The End of Easy Money?

[Igor Pereira]

The Bank of Japan (BOJ) has just confirmed what the market feared (and some expected): a new tightening in monetary policy. In an official statement released today, the monetary authority decided raise the short-term interest rate (uncollateralized overnight call rate) to "about 0.75%", rising from the previous level of 0.5%.

By Igor Pereira Financial Market Analyst

This decision marks a critical inflection point for the Yen and consequently for the Yen. USD/JPY . Below, I detailed the reasons and the immediate impact.

The Pillars of the Decision

BOJ is more confident than ever in internal economic recovery. The key points of the communiqué include:

1. The Salary-Price Cycle is Real: The bank stated that it is "highly likely" that the mechanism where both wages and prices rise moderately will be maintained. The underlying inflation (IPC) continues to rise with the transfer of wage costs to the current sales prices.

2. Confidence in Wages: There is a strong expectation that companies will continue to increase wages steadily next year, following this year's strong increases. The risk of interruption of this behavior is considered low.

3. Minor External Uncertainty: One crucial point for traders is that the BOJ noted that, although uncertainties remain, concerns about the US economy and the impact of trade policies decreased.

What Does This Mean for USD/JPY?

For us at ExpertFX School, technical and fundamentalist reading aligns:

• Low Pressure in USD/JPY: The increase to 0.75% narrows the interest differential between Japan and the US. Although real rates should still remain "significantly negative" to support the economy, the directional movement is clear: Japan is rising interest, while the world (USA/Europe) is discussing cuts. That strengthens the yen.

• Carry Trade Under Attack: As we have previously warned, each base point of increase in Japan increases funding for global speculators. The cost of "renting" Yen rose 50% (from 0.5% to 0.75 %), which should accelerate the dismantling of positions purchased in Dollar.

The Future: Higher to View?

The communique leaves the door open. The bank explicitly stated that, if the perspective presented in the October 2025 Report is realised, the Bank will continue to adjust the degree of monetary accommodation .

That is, this is not an isolated movement ("one-and-done"). It's a trend. The probability of reaching the 2% price stability target in the second half of the projection period is increasing.

ExpertFX Recommendation: The fundamentalist bias for the Yen is now strengthening. Traders should be careful with long purchases in USD/JPY in the medium term and look for reversal patterns (such as Wyckoff Distribution) to position themselves in favor of the new monetary trend.

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By Igor Pereira Financial Market Analyst