USD/JPY around 154: The Dollar remains steady while Tokyo stays cautious on rates

The USD/JPY pair remains close to 154.05 in Monday’s Asian session, consolidating at levels that reflect the policy divergence between Washington and Tokyo. While the U.S. Federal Reserve maintains a cautious stance with its range of 3.75%-4.0%, the Bank of Japan continues to step on the brakes in its monetary normalization cycle.

BoJ halts rate hike expectations

Governor Kazuo Ueda made it clear in October’s meeting that the Japanese central bank is in no rush. Although maintaining its rate at 0.5%, Ueda emphasized that it needs “more information” before any future move, particularly regarding wage momentum in the 2026 shunto. This caution marks the sixth consecutive meeting without policy rate changes since last January.

The market expected a more aggressive tone. Instead, Ueda sent a mixed message: the BoJ “has no prejudices” about whether to raise rates, but also did not specify when. This ambiguity pressures the Yen and favors the dollar, creating an environment where the USD/JPY carry trade finds technical support.

Fed maintains moderate cuts, but Powell closes the door for December

On the U.S. side, Jerome Powell moderated expectations about future cuts. After reducing rates for the second time in 2024, the Fed chair noted that an additional decrease in December “is not an inevitable conclusion.” This change in rhetoric has been effective: federal funds futures now reflect only a 63% probability of a cut in December, compared to 93% a week ago according to CME FedWatch.

This bullish shift for the USD is reinforced by domestic political uncertainty in the U.S. The government shutdown has now lasted six weeks without a visible solution, which could generate economic pressures and redirect capital flows toward the dollar in the short term.

Yen as a safe haven asset: Beyond the numbers

The Japanese Yen continues to be considered a preferred destination during market volatility. Its reputation as a defensive currency means that each geopolitical or financial turbulence tends to strengthen its valuation against riskier assets. A trillion yen in Japanese reserve capital remains a symbolic figure of Japan’s fiscal strength, although the ultra-flexible monetary policy of the past (2013-2024) significantly weakened its relative purchasing power.

The divergence that explains everything

The growing gap between U.S. and Japanese 10-year bonds has been the main driver of the USD/JPY pair. While the Fed maintains higher rates, the yield differential continues to favor the dollar. The ultra-flexible BoJ policy in the previous decade widened this divergence; now, its gradual unwinding is narrowing the gap, but not fast enough to reverse the trend.

What to expect this week

The U.S. ISM Manufacturing PMI will be released today and could add volatility. A weak result might reopen bets on cuts in December; a strong one would reinforce the dollar’s strength. Meanwhile, any signals from the BoJ regarding the timing of its next rate hike (expected no earlier than 2025) will remain key for USD/JPY dynamics in the coming months.