The Bank of Japan raised its policy rate by 25 basis points to 1.25% on September 18, the highest level in 31 years, yet the yen still declined for a third consecutive session, falling to around 157.70 per US dollar on September 22, a 0.22% loss. This weakness stems from the approximately 275 basis point yield spread between the US and Japan, which incentivizes traders to borrow yen and invest in higher-yielding currencies. The market is currently pricing in roughly a 30% probability of a rate hike to 1.5% at the October meeting. The BOJ decision passed by a 7-2 vote, reflecting a lack of consensus within the institution on aggressive tightening.
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