Yen Vulnerable Amid Holiday and BOJ Disappointment

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Yen Vulnerable Amid Holiday and BOJ Disappointment

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The Japanese yen is facing potential volatility and further declines as Japan enters a three-day holiday weekend, which is expected to reduce trading liquidity. Investors were reportedly disappointed by the Bank of Japan’s (BOJ) recent decision on interest rates, as it did not provide clearer guidance on the pace of future hikes.

On Friday, September 18, 2026, the yen weakened by as much as 1.3% against the dollar after the BOJ’s announcement. The central bank raised its policy rate to 1.25% from 1.0%, the highest level since 1995. This was the sixth rate increase since March 2024, when the BOJ ended its negative rate policy. Despite the hike, the yen ended the week down more than 2%, closing at 156.88 against the dollar.

Two board members, Ayano Sato and Toichiro Asada, dissented from the BOJ’s decision to raise rates, citing concerns about the strength of the Japanese economy and whether inflation was high enough to warrant the increase. BOJ Governor Kazuo Ueda stated that the bank would determine the pace of future rate hikes at each policy meeting, without a preset plan.

The upcoming holiday period in Japan, often referred to as “Silver Week,” raises concerns about reduced market depth, which could amplify price movements and increase the impact of any potential currency intervention by authorities. Japanese authorities have a history of intervening during low-liquidity periods to maximize the effect of their actions. In April and May 2026, Japan’s Ministry of Finance intervened with a record ¥11.73 trillion (approximately $73.35 billion) after the yen weakened past 160 against the dollar. More recently, in late July, a coordinated intervention by the U.S. and Japan bolstered the yen by over 6%.

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