During Monday’s Asian early session, USD/JPY came under downward pressure and traded around 158.25. The yen’s latest strength was largely driven by Bank of Japan policy signals. Minutes from the September policy meeting, released on Thursday, showed most board members judged further rate hikes would be appropriate as core inflation gradually approaches the 2 % target. Though the BoJ kept rates unchanged at its previous meeting, it reiterated resolve against inflation‑related risks, lifting market bets for a December rate increase.

Market pricing for Japanese monetary policy normalization has moved forward further. Public remarks from a former senior BoJ official reinforced market expectations, with markets now factoring in a December hike and potential additional rate rises through next year toward a 2 % policy rate amid building inflation pressures.

Strong US employment figures provided offsetting support for the US dollar. October non‑farm payrolls registered 165 000 new jobs, well above the consensus forecast of 65 000 and higher than September’s 60 000 reading. The unemployment rate fell to 4.1 % from 4.2 %. Following the release, the CME FedWatch Tool put the market‑implied probability of a December Fed rate hike at 79.6 %, up from 72.8 % prior to the payroll print.

During phases of risk‑off sentiment amid equity sell‑offs, capital‑flow preferences diverged. The yen drew support from both safe‑haven inflows and domestic monetary‑tightening expectations, appreciating by as much as 0.5 % to near 157.70. Meanwhile, the US Dollar Index stayed roughly flat near 101.6, as falling Treasury yields eroded some of the dollar’s appeal. Hawkish commentary from a Federal Reserve official lent underlying support to the dollar, acknowledging solid labour‑market performance, prioritizing inflation restraint and noting job‑market resilience creates room for further policy tightening. Related sentiment‑tracking metrics climbed well above neutral levels, reflecting the broad‑based market view that the Federal Reserve retains scope for additional tightening notwithstanding uncertainties around tariffs, geopolitical conflict and the AI sector.

Against this backdrop, USD/JPY has entered a two‑way trading tug‑of‑war. On the yen side, expectations for BoJ normalization together with safe‑haven demand apply downward pressure to the pair. On the dollar side, robust US labour‑market data and Fed hawkishness cap downside moves for USD/JPY. Monetary‑policy divergence between the United States and Japan is narrowing at the margin: the BoJ moves toward policy normalization while markets price one more likely Fed hike, diminishing the marginal support that interest‑rate differentials previously offered to USD/JPY.