BOJ hike to 1.25% pushes USD/JPY above 157 as dissents loom

The Bank of Japan raised its policy rate to 1.25% today, yet the Japanese yen declined. USD/JPY moved back above 157 after the announcement, aiming for further gains. The rate increase had been broadly anticipated, shifting attention to the implications for future BOJ actions.

The 7-2 vote count is the key factor here. Two board members, Toichiro Asada and Ayano Sato, dissented from the rate decision. They are also the newest additions to the BOJ board, appointed by Prime Minister Sanae Takaichi earlier this year. Asada and Sato have previously expressed support for looser monetary and fiscal policy, likely a reason for their selection by Takaichi. Their appointments have made the board more dovish, and the vote underscores how this could affect the speed of future rate increases.

Markets saw the divided vote as a sign of reduced unity within the BOJ regarding faster tightening, prompting USD/JPY to jump back above 157. Still, seven of the nine members voted together, so the decision does not represent a dovish turn. The key issue for the yen this week was whether the BOJ could maintain the pace of rate increases that markets had anticipated. The two dissents appointed by Takaichi indicate that the threshold for further BOJ action has risen.

The move pushed USD/JPY above the 50.0% Fibonacci retracement of the early-September sell-off at 156.64. A break above 157.00 could lead to a test of the 61.8% level at 157.53, followed by the 200-day moving average near 158.38, a potential target for buyers. The yen could find some support if BOJ Governor Kazuo Ueda delivers more hawkish comments in his press conference later.

Two dissenting votes are not sufficient to derail the BOJ's tightening path if the majority remains committed. However, the emergence of two distinct factions, a rarity at the BOJ in recent years, raises doubts about the timing of the next rate increase.