Yen strengthens after Bank of Japan holds rates and signals further tightening

The yen strengthened against the US dollar on Friday, October 30, after the Bank of Japan kept interest rates unchanged but raised its inflation outlook, reinforcing expectations of another increase before the end of the year.

The currency also benefited from declining US Treasury yields as a technology-led selloff encouraged investors to seek safer assets.

Price overview

USD/JPY traded around 157.12 yen during Friday's morning session, down from approximately 157.71 at the previous opening, with the pair moving between 157.12 and 157.90 yen during the session.

EUR/JPY traded near 176.31 yen, while GBP/JPY stood around 211.00 yen.

Bank of Japan leaves rates unchanged

The Bank of Japan maintained its benchmark interest rate at 1.25% following an 8–1 vote, with board member Hajime Takata calling for an immediate increase to 1.50%.

Policymakers also raised their inflation projections and indicated that further tightening would be necessary if economic conditions develop as expected.

The central bank acknowledged that underlying inflation had reached a level broadly consistent with its 2% target, marking an important shift after decades of efforts to overcome deflation.

December hike expectations strengthen

Investors increasingly expect the Bank of Japan to raise borrowing costs again in December, particularly as elevated energy prices and a weak yen threaten to sustain inflationary pressures.

Governor Kazuo Ueda's press conference, scheduled for 06:30 GMT, will provide further indications of the central bank's policy outlook.

US yields support yen recovery

US Treasury yields declined following Thursday's technology stock selloff, reducing some of the dollar's interest rate advantage over the yen.

The Federal Reserve's decision to leave rates unchanged earlier this week also kept investors focused on the prospects for December tightening.

Market outlook

USD/JPY faces immediate support near 157.10, while resistance stands around 157.90.

Further indications of Japanese monetary tightening could support the yen, particularly if US bond yields continue to decline.