The yen is testing multi-decade lows even after the BOJ moved to raise rates, a signal that the market views the hike as too modest to close the interest-rate differential with the US — the core driver of yen weakness. The carry trade, where investors borrow cheap yen to fund higher-yielding assets elsewhere, remains deeply entrenched, and a single hike without a credible forward-hiking path has done little to unwind it.
The key watch now is whether the BOJ signals a faster pace of tightening or whether Japan's Ministry of Finance steps in with direct FX intervention as it did in 2022 and 2024. A disorderly yen move could force an abrupt carry-trade unwind, rattling global risk assets — as seen in August 2024. Traders are watching USD/JPY levels in the 155-160 range as potential intervention triggers, and any Fed dovish pivot could accelerate yen recovery.