The Japanese yen fell sharply against the US dollar on Friday, September 18, 2026, even after the Bank of Japan raised its key interest rate to 1.25%. The move took the BOJ rate to its highest level in 31 years. Yet, instead of giving the yen a strong boost, the decision led to fresh selling pressure on the currency.
The US dollar rose more than 1.2% against the yen and reached a two-week high of 157.84 yen. At another point, the pair moved as high as 158.07 yen. This marked a sharp shift in the currency market after the BOJ decision.
The main reason was not the rate hike itself. Markets had already expected the BOJ to raise rates. The bigger issue was what the decision said about the bank’s next steps. Two BOJ policymakers voted against the increase, which raised doubts about the pace of future rate hikes.
BOJ Raises Rates to 1.25%
The BOJ raised its policy rate from 1% to 1.25% at its two-day meeting, which ended on Friday. The decision passed by a 7-2 vote. Board members Toichiro Asada and Ayano Sato opposed the move.
The rate increase itself was widely expected by the market. Japan has faced higher price pressure, partly due to higher energy costs and a weaker yen. The BOJ has also moved away from its long period of ultra-low rates as inflation has moved closer to its 2% target.
The central bank has now reached a policy rate not seen since the mid-1990s. This marks an important change for Japan, where very low rates had remained a key part of economic policy for many years.
Still, the currency market wanted a stronger signal about what could come next.
Two Dissenting Votes Changed the Market Mood
The two dissenting votes became one of the main reasons for the yen’s fall. A rate hike normally supports a currency because higher rates can make that currency more attractive to investors.
In this case, traders focused on the split inside the BOJ. The 7-2 vote suggested that the central bank did not have full agreement on the need for faster policy tightening.
That detail reduced some expectations for another rate increase soon. The market had already priced in the September hike, so traders looked beyond the decision itself. They wanted clear signs that more hikes could follow.
Instead, the two dissenting votes created doubt about the next stage of Japan’s policy path. Reuters reported that the decision raised questions about the likelihood of further hikes.
Governor Ueda Gives a Careful Signal
BOJ Governor Kazuo Ueda also played an important role in the market reaction. His comments pointed to a change in the bank’s policy focus, with greater attention on inflation risks.
The BOJ has signalled that it remains ready to raise rates if price pressure stays strong. However, traders did not see the message as hawkish enough to support a major yen recovery right away.
This created an unusual market reaction. Japan raised rates, but the yen weakened. The result shows why currency markets do not react only to the size of a rate move.
What matters just as much is whether the move was already expected and what the central bank says about its next decision.
US Dollar Gets a Strong Boost
The yen also faced pressure from a stronger US dollar. The Federal Reserve recently raised its policy rate by 25 basis points to a range of 3.75% to 4.00%. This was the first US rate hike since July 2023.
Markets are also raising their expectations for another US rate hike. According to CME FedWatch data cited by FXStreet, the chance of another hike at the October meeting rose to about 53.1%, up from around 44% a day earlier.
This change has helped the dollar gain strength against several major currencies.
The US Dollar Index, or DXY, rose to around 100.30 earlier in the day and later reached about 100.50, a fresh seven-week high.
For USD/JPY, this creates pressure from both sides. The dollar has support from higher US rate expectations, while the yen has faced doubts about the speed of further BOJ action.
USD/JPY Moves Toward 158
The USD/JPY pair became one of the main forex stories of the day. The dollar rose more than 1.2% against the yen and reached 157.84 yen, according to Reuters. Another Reuters report placed the session high at 158.07 yen.
The move put the yen at a two-week low against the dollar.
The size of the move also made this an important week for the pair. Reuters reported that the dollar was set for its biggest daily rise against the yen since December and its largest weekly gain since September 2024.
The move shows how quickly forex markets can change when central-bank expectations shift.
Risk of Currency Intervention Returns
The yen’s fall also brings attention back to the possibility of Japanese currency intervention.
A very weak yen can raise the cost of imported goods and energy for Japan. That can add to price pressure for households and companies. A rapid move in USD/JPY can therefore create concern among Japanese authorities.
The current level near 158 yen per dollar is important for the market because traders are closely watching how far the yen may weaken. The latest Reuters report also noted that the yen’s decline has raised speculation about possible intervention.
However, intervention risk does not mean that action will take place. The market can only watch for official comments and signs of direct action.
Other Major Currencies Also Face Dollar Pressure
The dollar’s strength was not limited to the yen. The euro fell to about $1.146, while the British pound traded near $1.334.
EUR/USD has faced pressure from the stronger US rate outlook. FXStreet reported that the pair traded near 1.1460 on Friday, while the DXY reached a fresh seven-week high near 100.50.
The pound also remains under pressure after the Bank of England kept its rate at 3.75% on Thursday, although the central bank signalled that another hike was becoming more likely.
This means the forex market is now focused on the different paths taken by the major central banks.
What the Yen Move Means for Forex
The yen’s fall after a BOJ rate hike may seem unusual at first. However, the market reaction becomes clearer once expectations are taken into account.
The BOJ raised rates to 1.25%, but the decision was already expected. Two policymakers voted against it, and the bank did not give traders the strong signal for rapid future hikes that some had hoped to see.
At the same time, the Federal Reserve has raised its rate to 3.75%-4.00%, while market expectations for another US hike have increased. This has kept the dollar in a strong position.
For now, USD/JPY near 158 remains the key level to watch. The next major moves could depend on future comments from the BOJ and Federal Reserve, fresh inflation data, US interest-rate expectations and any response from Japanese authorities if the yen weakens further.
The September 18 session therefore shows an important point about forex: a central-bank rate hike does not always lift its currency. What matters is the gap between what the market expects and what the central bank actually delivers. In Japan’s case, the 1.25% rate was a major policy step, but the split vote and cautious signal on future action were enough to push the yen lower.
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