Both Japan and the US hold interest rates steady. Why you still cannot read the dollar-yen pair based on 'interest rate differentials alone'
The central banks of Japan and the United States have both kept interest rates unchanged. Does this mean the factors for judging the dollar-yen pair have not changed at all? The answer is no. Reading the decision statements from October, while the ‘status quo’ was the majority view in both countries, a minority sought a rate hike. Therein lies a difference in temperature regarding the next policy decision that cannot be seen from interest rate levels alone.
Based on official announcements confirmed as of the night of Saturday, October 31, I will organize the facts that have been decided, what can be read from them, and what is still unknown. I want to avoid treating markets that are not trading over the weekend as if they are ‘moving now,’ and instead think about what to verify in the next published documents.
Within the ‘hold,’ there were votes for rate hikes in both Japan and the US
At its Monetary Policy Meeting on October 30, the Bank of Japan decided by an 8-1 vote to maintain its policy of keeping the uncollateralized overnight call rate at around 1.25%. Policy Board member Hajime Takata, who dissented, proposed raising it to around 1.5%. The dissenting vote was not a call for a rate cut.
Meanwhile, the US Federal Open Market Committee (FOMC) maintained its target range for the federal funds rate at 3.75-4.00% on October 28. The vote was 10-2. Governors Lisa Cook and Beth Hammack, who dissented, wanted a 0.25 percentage point rate hike. This, too, was not a case of ‘dissent against a hold equals a demand for easing.’
Interest rates in both countries are managed under different systems. It is not accurate to compare the target level of Japan’s short-term market interest rates and the US federal funds rate target range as if they were simple, identical commodities like product prices. However, it can be confirmed in official documents that the US policy rate is higher than Japan’s, and that minority opinions calling for rate hikes emerged at both meetings.
What is important here is not to convert the number of votes into a ‘probability’ of future policy. The number of committee members and the background of the discussions are different. One cannot say that ‘the US is closer to a rate hike’ by comparing the one dissenting vote at the BOJ with the two dissenting votes at the Fed.
Even if interest rate differentials remain, exchange rates do not necessarily move in the same direction
When considering the dollar-yen pair, interest rate differentials are an important factor. Generally, if other conditions are equal, the appeal of holding a currency with a higher interest rate increases. However, in the actual foreign exchange market, not only the ‘current interest rate level’ but also ‘when and in which direction the market expected that level to change’ is reflected in the trading price.
For example, even if the Bank of Japan keeps interest rates steady, if the market, which had hardly expected a rate hike in advance, reads the statement or press conference and estimates a higher possibility of a rate hike next time, it could become a factor for buying the yen. Conversely, for a market that had strongly priced in a rate hike, the same hold could become a factor for selling the yen. This is a conditional explanation and does not identify the cause of the current price movement.
The same applies to the US side. The fact that interest rates were held steady alone cannot explain the movements of long-term interest rates, views on inflation, assessments of the economy, risk appetite in the stock market, or real-demand currency transactions. One must be careful with terms like ‘the true cause of yen appreciation’ or ‘the deciding factor for yen depreciation’ that explain exchange rates with only a single piece of news.
The Bank of Japan’s foreign exchange market data is published for Tokyo time on October 30. The starting point is not to confuse this with the current weekend value or the closing price of the US market. If you are going to compare, you must line up values from the same market, the same time zone, and the same currency pair.
After the dissenting votes, the next thing to read is the ‘conditions’ in the announcement
The Bank of Japan’s October 30 announcement includes not only the policy interest rate but also a review of the pace of ETF sales. It was decided to increase the pace from approximately 330 billion yen to 860 billion yen per year on a book-value basis, starting in January 2027. This is a separate policy regarding how to reduce assets held in the stock market and cannot be equated with raising short-term interest rates. If you read monetary policy based only on a single interest rate figure, you will overlook such alternative paths.
The Fed’s October 28 statement indicated an understanding that economic activity is expanding at a strong pace and that inflation remains high. At the same time, it stated that it will determine an appropriate policy stance while gathering additional information. The existence of dissenting votes and the official judgment of the committee majority are different things. One cannot read the minority opinion as the next decision.
When organizing the conditions under which judgments change, for the Bank of Japan, the underlying inflation rate and the sustainability of wages and demand are important. For the Fed, observations on whether inflation is heading toward the target and whether the strength of employment and economic activity will continue are necessary. In both cases, actual policy decisions depend on multiple documents, and they are not determined with the exchange rate itself as the target.
Next, which documents to check, when, and from where
The Bank of Japan even notes the next scheduled publication date in its October 30 decision statement. The full text, including background explanations for the ‘Outlook for Economic Activity and Prices,’ is scheduled for 2:00 PM on Monday, November 2, and the ‘Summary of Opinions at the Monetary Policy Meeting’ is scheduled for 8:50 AM on Tuesday, November 10. First, read the full text for the premises regarding prices, wages, and the overseas economy. Next, check the summary of opinions to see where the committee members’ concerns are concentrated. This is the order in which to follow the conditions for judgment, which cannot be understood just by the fact that there were dissenting votes.
The next FOMC is scheduled for December 8-9 (local time) in the US, and the statement is scheduled to be released at 2:00 PM on December 9 (Eastern Standard Time). This corresponds to 4:00 AM on December 10 in Japan time. Japan’s next Monetary Policy Meeting is scheduled for December 17-18. If you only note that the next meetings for both Japan and the US are in ‘December,’ you will miss which information reaches the market first.
Since US daylight saving time ends on November 1, you should also check whether it is daylight saving time or standard time when converting US announcement times to Japan time. It is also important not to confuse the opening time of the US stock market with the trading hours of the foreign exchange market.
When actually making comparisons, look at the market expectations before the announcement, the new and old expressions in official statements, the conditions indicated in the chair’s or governor’s press conference, and the exchange rates and government bond yields immediately after the announcement and on the next business day, all aligned by time. If the price movement differs from expectations, do not simply assume the market was wrong; instead, confirm what had been priced in beforehand.
Having a basis for judgment rather than asking ‘who will raise rates first’
The conclusion for this week is that while both Japan and the US kept rates on hold, there were dissenting votes calling for rate hikes at both meetings. This does not mean that a policy change is set in stone. Nor is it a guarantee of a stronger or weaker yen.
When reading the next piece of currency news, in addition to asking ‘what is the policy interest rate?’, I would like to verify ‘who argued for moving in which direction’, ‘what is the majority waiting for’, and ‘at what time was that information observed’. It is not a magic number for predicting market direction, but it serves as a solid foothold for judging the meaning of the news for yourself, rather than just relying on a single headline.
A book for interpreting currency news on your own
When you read interest rate announcements but cannot organize why the currency moves, there is a way to relearn from the mechanics. ‘Foreign Exchange as Liberal Arts’ (Toshio Oya, Kanki Publishing, 2026) is a book that covers the basics of foreign exchange and how to view economic news. I introduce it not as a tool for predicting specific market trends, but as a reference book for thinking about policy announcements and market reactions separately.
View ‘Foreign Exchange as Liberal Arts’ on Rakuten Ichiba (PR)
View ‘Foreign Exchange as Liberal Arts’ on Yahoo! Shopping (PR)
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