By Linh Tran, Market Analyst at XS.com
The outlook for USDJPY in mid-November 2025 continues to lean in favor of the U.S. dollar, primarily due to the stark divergence in monetary policy stances between the Federal Reserve and the Bank of Japan (BoJ). The pair is holding around the 154.5 level—near its highest range in many months—reflecting significant yen weakness at a time when interest-rate differentials between the two economies remain unusually wide.
In the United States, the Federal Reserve has entered a rate-cutting phase, but at a very cautious pace. The late-October 2025 meeting delivered the second rate cut of the year, bringing the federal funds rate down to 3.75–4.00%. Even so, U.S. core inflation remains around 3%, and the labor market is only beginning to show signs of cooling. This prevents the Fed from shifting to a more aggressive easing stance, while real interest rates in the U.S. remain sufficiently positive to attract yield-seeking flows. With the U.S. economy slowing but not entering recession, the dollar continues to maintain relative strength against major currencies, including the yen.
Japan, on the other hand, continues to show patience in normalizing monetary policy. According to the Bank of Japan, the policy meeting on 30 October 2025 resulted in a vote of 7–2 to keep the policy rate around 0.5%. Board members Hajime Takata and Naoki Tamura once again proposed raising rates to 0.75% but did not receive majority support. A meeting summary reported by Reuters noted that more policymakers now believe the conditions for rate hikes are gradually forming; however, Governor Kazuo Ueda emphasized that additional time is needed to assess wage growth and the impact of external factors such as U.S. trade tariffs.
In reality, Japan’s inflation has already exceeded 2% amid yen depreciation and rising import costs for food and energy. This has increased pressure on the BoJ but has not provided enough justification for a decisive tightening cycle. With Japan’s policy rate anchored at 0.5% while U.S. rates stand in the 3.75–4.00% range, the yield gap remains substantial. This gap continues to support carry-trade flows in which investors sell JPY and buy USD to capture higher yields. ING’s latest analysis highlights that the policy and yield divergence remains the primary driver sustaining USDJPY at elevated levels and reinforcing short-term yen weakness.
The interest-rate differential between the U.S. and Japan has therefore kept carry-trade dynamics firmly intact. As long as the Fed eases only gradually while the BoJ stays on hold, the fundamental case for a higher USDJPY remains in place.
However, USDJPY’s approach toward its 52-week high also raises the risk of foreign-exchange intervention from Japan—an element that cannot be overlooked. This zone is highly sensitive for the Ministry of Finance and the BoJ because excessive yen weakness raises import costs and could push inflation beyond manageable levels. Historically, similar situations have prompted sharp verbal warnings or actual intervention, often triggering abrupt market moves. Thus, although the underlying trend still favors the U.S. dollar, the probability of sudden and deep corrections is rising.
Overall, the outlook for USDJPY remains moderately tilted to the upside, supported by the wide interest-rate differential and the BoJ’s continued reluctance to tighten policy more decisively. Even so, the current price zone has entered an intervention-sensitive area where authorities could step in at any time. The dollar retains a fundamental advantage over the yen, but intervention risks are increasing with each session as the pair edges toward higher levels.