USD to JPY exchange rate hits new high: Yen continues to weaken after central bank decision

Following the Bank of Japan’s announcement of the latest monetary policy decision, the USD/JPY exchange rate responded by rising, reaching around 156.90 during Friday’s European trading session, an increase of 0.85%. The Japanese yen also underperformed against other major currencies, bearing the brunt of this adjustment.

Central Bank Decision Boosts the US Dollar

As expected by the market, the Bank of Japan raised its benchmark interest rate by 25 basis points to 0.75%, the highest level in 30 years. Although this decision aligned with expectations, market interpretations of subsequent policy directions remained ambiguous. BOJ Governor Kazuo Ueda stated at a press conference, “If the economy and prices are in line with forecasts, we will continue to raise the policy interest rate,” but there was no clear guidance on the timing and magnitude of rate hikes in 2026.

This policy uncertainty has left investors confused about the yen’s appreciation prospects. Meanwhile, the US dollar has gained momentum. The US Dollar Index (DXY), which tracks the performance of the dollar against six major currencies, hit a weekly high of nearly 98.65 at the time of reporting.

Dovish Fed Expectations Support the US Dollar

The rise in the USD/JPY exchange rate is also driven by changing expectations of Federal Reserve policy. Although US November inflation data showed some decline, market expectations for a rate cut at the January Fed meeting remain cautious, allowing the dollar to continue its upward momentum.

Yen Under Pressure Against Multiple Currencies

In terms of currency pair performance, the yen depreciated by 0.82% against the dollar, making it one of the weakest currencies. The yen also fell by 0.72% against the euro and 0.78% against the British pound. Conversely, currencies like the US dollar, Canadian dollar, and Australian dollar strengthened, further highlighting the yen’s weakness during this trading cycle.

The trend of USD/JPY reflects the market’s desire for clarity in central bank policies. When policy guidance is vague, investors tend to shift toward relatively safer assets, which explains why the dollar has performed strongly in this round of adjustment, while the yen, despite rate hikes, still struggles to find support.