Why the Yen Isn't Strengthening Despite Rising Prices - "The Yen Should Appreciate if the Bank of Japan Raises Interest Rates," But What the Forex Market is Watching for Next

Why the Yen Isn't Strengthening Despite Rising Prices - "The Yen Should Appreciate if the Bank of Japan Raises Interest Rates," But What the Forex Market is Watching for Next

The yen has slightly rebounded. So, will the rise in prices for groceries and overseas travel finally be curbed?

There is still a distance between the rebound in the foreign exchange market and an improvement in living conditions.

According to an article by the RoboForex analysis department published by InvestMacro on October 2, 2026, the dollar/yen fell to 157.94 yen after a sharp rise the previous day. This movement indicates a strengthening of the yen as fewer yen are needed to buy one dollar. However, the article expressed caution about a full recovery, noting that at the time of publication, the yen was heading for a third consecutive weekly decline.

The 157.94 yen level is the rate at the time the original article reported it and does not represent the current value or the closing price of the same day.


Rising prices support the yen, but it doesn't automatically lead to a stronger yen

According to the mid-month flash report for September released by the Statistics Bureau of Japan's Ministry of Internal Affairs and Communications on October 2, the core CPI, which excludes fresh food, in the Tokyo metropolitan area rose by 2.7% compared to the same month last year. This increase is up from 1.8% in August, and the index excluding fresh food and energy also rose by 3.0%.

If prices rise, it becomes more likely that the Bank of Japan will move towards additional rate hikes. The expectation of higher interest rates when investing in yen becomes a factor for yen buying.

However, just because one indicator in the Tokyo metropolitan area exceeds 2%, it does not mean the Bank of Japan will immediately decide on the next rate hike. The Tokyo flash figures serve as a clue for considering national price trends, and the Bank of Japan also considers wages, demand, and temporary policy factors in its judgment.

The statistics also reflect the impact of year-on-year comparisons of water charges and nursery school fees. It is not appropriate to explain the expansion of the inflation rate solely by yen depreciation or rising crude oil prices.

For households, price increases themselves are a burden, but when reading monetary policy, it is necessary to look at "what has increased."


What is the Bank of Japan hesitating about, and what is it cautious of?

The original article evaluates that the "main opinions" from the September meeting were not as aggressive towards rate hikes as the market expected. This is the analysts' interpretation and not the Bank of Japan's official self-assessment.

The official materials published on October 1 include opinions supporting the need to prevent price surges and additional rate hikes as needed. On the other hand, cautious opinions about rate hikes at the September meeting, considering the strength of the economy and the state of prices, are also included.

In other words, it is not a situation that can be simply dismissed as "the Bank of Japan does not want to raise rates." The challenge is how to balance the need to curb prices with the need not to place excessive burdens on the economy.

For the foreign exchange market, what matters is not only whether there will be a rate hike but also when and how quickly it will proceed. If the policy has already been anticipated by the market, yen buying may not continue even if a rate hike occurs.


Even if Japan moves, if the US also moves, the interest rate differential remains

When considering the future of the yen, it is not enough to only look at Japan's policies.

In a statement on September 16, the US Federal Reserve (FRB) raised its target range for the policy interest rate by 0.25 points to 3.75–4.00%. The statement pointed out that inflation remains high.

The original article is cautious about the yen's recovery, emphasizing the strength of the US dollar, the high yield of US government bonds, and the possibility that the US-Japan interest rate differential will remain.

Generally, all else being equal, investments in currencies with higher interest rates tend to be more attractive. Even if Japan's interest rates rise, if US interest rates also rise, the relative attractiveness of the yen may not significantly improve.

Of course, exchange rates are not determined solely by interest rate differentials. Future policy expectations, economic conditions, capital flows, and investors' holdings also move the market. However, to consider "why the yen does not appreciate even though Japan raised rates," it is essential to simultaneously observe changes on the US side.


On overseas social media, expectations for yen appreciation and doubts about intervention intersect

The reactions confirmed on social media include posts related to yen depreciation and monetary policy on the overseas forum Reddit. The following is a summary of related discussions, not direct responses to the original article, and does not represent the overall public opinion in Japan.

 

In the r/japan thread discussing Japan's foreign reserves and currency intervention, there were opinions that intervention alone cannot resolve the issues underlying yen depreciation. Some posts expressed doubt that even if the yen temporarily rises, it might return to its original level.

On the other hand, in the same thread, there were opinions expecting that if the Bank of Japan's rate hike materializes, it should lead to yen appreciation, although the extent and timing of the rise are uncertain.

What is reflected here is the coexistence of expectations for "policy movement" and doubts about "whether the market trend will really change."

However, the economic and policy explanations by the posters are merely personal views. They do not guarantee the effects of intervention or the exchange rate after a rate hike. What can be read from such discussions is that opinions are divided over yen depreciation.


Both yen depreciation and rate hikes impact Japanese households

Yen depreciation raises the yen-converted amount of goods and services procured in dollars.

For example, even if the price of a $100 product remains unchanged, it would be 15,000 yen at 150 yen per dollar and 15,800 yen at 158 yen per dollar. This is a simple calculation changing only the exchange rate, excluding shipping, taxes, and transaction fees.

Such differences are easily felt in overseas travel, study abroad expenses, and fees for using overseas services. Domestic products using imported raw materials may also be affected over time.

However, just because the yen appreciates does not mean store prices will immediately fall. Companies may hold inventory procured at previous exchange rates, and labor and logistics costs also influence selling prices.

Furthermore, rate hikes that could support yen appreciation have another aspect. While they may be positive for deposit interest rates, they could increase interest payment burdens on variable-rate home loans and business financing, depending on contract terms.

"I want rate hikes because yen depreciation is tough" and "I am troubled by increased repayments" can be simultaneous concerns within a single household.

For those holding foreign currency assets, yen appreciation may decrease the yen-converted valuation. The impact varies with the combination of income, expenses, borrowing, and asset holdings, even with the same market fluctuations.


The battle just before 159 yen is not a prediction but a conditional outlook

The original article's chart analysis identifies 158.75–158.99 yen as the upper resistance band for the dollar/yen. If it cannot surpass this, it suggests the possibility of falling to 157.34 yen and further to 155.60 yen.

The decline in the dollar/yen here means a rise for the yen, in other words, yen appreciation. Misreading "the dollar/yen recovers" as "the yen recovers" reverses the meaning.

Moreover, these are conditional scenarios indicated by RoboForex based on the chart at the time of writing and are not levels guaranteed to be reached. Announcements of monetary policy or new economic indicators can change the premises.

What Japanese readers should focus on is not just reaching specific numbers. It is whether the US-Japan interest rate differential is narrowing, in which sectors price increases continue, and whether wage growth is catching up with the increase in living costs.

It is necessary to separate the yen's one-day rebound from changes in the conditions of yen depreciation that pressure living standards. Only by looking beyond the market numbers to purchasing power can exchange rate news be connected to daily life.


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