USD/JPY retreats from two-week high as Greenback's momentum fades

• USD/JPY eases after hitting a two-week high of 148.38 on Monday.
• The Greenback’s post-Fed rally loses steam, with the US Dollar Index snapping a three-day winning streak.
• Fed’s Miran warns policy is “well into restrictive territory,” calling for deeper interest rate cuts.

The Japanese Yen (JPY) trims early losses against the US Dollar (USD) on Monday, with USD/JPY easing from its strongest level since September 8, near 148.38 touched in the Asian session.

At the time of writing, the pair is trading around 147.73 during American trading hours as the Greenback’s post-Fed rally loses momentum, with traders reassessing the Federal Reserve’s (Fed) cautious easing path and the Bank of Japan’s (BoJ) steady monetary policy stance.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is hovering around 97.38, snapping a three-day winning streak. The Greenback briefly tumbled to fresh year-to-date lows — its weakest level since February 2022 — in the immediate aftermath of last week’s 25 basis point (bps) interest rate cut. However, the cautious tone from Fed Chair Jerome Powell, signaling that additional easing would proceed gradually and remain data-dependent, quickly reversed sentiment and fueled a sharp rebound.

Earlier on Monday, fresh comments from Fed Governor Stephen Miran added to the debate over the policy path. Miran stressed that monetary policy is already “well into restrictive territory,” warning that leaving short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment. He reiterated his preference for a series of 50 bps cuts to recalibrate policy and signaled a willingness to dissent again.

The BoJ, meanwhile, kept its short-term policy rate steady at 0.50% last week but signaled the start of a slow normalization process by outlining plans to gradually reduce its massive ETF and REIT holdings. Governor Kazuo Ueda acknowledged that underlying inflation is approaching the 2% target and warned that prolonged food price pressures and US tariffs could add upside risks.

He also highlighted that real interest rates remain deeply negative, leaving scope for policy tightening if the growth and inflation outlook stays intact. The split within the board was also evident, as members Hajime Takata and Naoki Tamura dissented in favor of an immediate hike to 0.75%. Even so, the BoJ’s forward guidance remains cautious, stressing that durable wage growth is essential before further adjustments are made.

Looking ahead, market participants will focus on Tuesday’s September preliminary S&P Global Purchasing Managers Indexes (PMIs) from the United States, alongside remarks from Fed Chair Powell and other policymakers. On Wednesday, attention will turn to Japan’s Jibun Bank Manufacturing and Services PMIs.