Dollar advances vs yen as BOJ dissent clouds rate-hike outlook

By Saqib Iqbal Ahmed and Harry Robertson

NEW YORK, Sept 18 (Reuters) - The dollar jumped against the yen on Friday after two policymakers at the Bank of Japan dissented from a widely expected decision to raise interest rates, raising doubt among traders about the likelihood of further hikes.

The dollar pared gains after Japanese authorities conducted rate checks in the currency market — considered a preliminary step before intervention — the Nikkei newspaper reported.

The BOJ pushed rates to their highest level in 31 years at 1.25%, yet the move did not boost the Japanese currency as traders felt there was a lack of explicitly hawkish guidance.

The decision, coming on the heels of the Fed's hawkish message from earlier this week, clears the way for further dollar strength, strategists said.

"(The) lack of hiking punch makes it easier for USD to go higher," Steven Englander, head of G10 FX research at Standard Chartered, said.

"The USD strength that we have been forecasting for the medium to long term may finally be here," Englander said.

The US dollar was 0.5% higher at 156.725 yen, after rising as much as 1.3% to a two-week high of 158.05 yen.

It was set for its largest weekly rally since October 2025.

"They've just clearly underwhelmed versus expectations here," said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

"And I think that one of the more staggering aspects of it was that they couldn't even get the unanimous vote for that," he said. "That really raised eyebrows in the market."

Traders remained alert to the risk of intervention to prop up the currency after Finance Minister Satsuki Katayama said Tokyo won't hesitate to conduct further coordinated action, following a joint US-Japan move to boost the yen in late July.

"A hike that weakens the currency is an uncomfortable outcome for policymakers and gives the Ministry of Finance a stronger case to push back against one-sided price action," Kevin Ford, FX and macro strategist at Convera, said.

The yen rallied sharply in early September to its highest since February as traders bet the BOJ would embark on multiple rate hikes, although those wagers came into question on Friday.

ENERGY PRICES IN FOCUS

FX market participants remained focused on energy prices and the US Federal Reserve.

The dollar index, which tracks the currency against six major peers, was up 1.2% for the week to around a seven-week high after the US Federal Reserve hiked interest rates on Wednesday and signalled more increases could be coming.

Traders see a roughly 55% chance of a quarter-point hike at the Fed's next two-day meeting next month, up from 27% a week ago, according to the CME Group's FedWatch tool.

Oil prices slipped to their lowest levels in around a week on signs of easing supply pressures in Saudi Arabia.

China has asked Tehran to help rein in the Iran-aligned Houthis after their military blitz on Saudi Arabia over the past week, three Iranian sources familiar with the matter told Reuters.

The euro rose 0.5% to $1.1481 and was set to end the week 1% lower after the Fed's rate hike.

The British pound was 0.3% higher at $1.3391, after retail sales data beat expectations on Friday. The Bank of England held interest rates on Thursday but also suggested it could raise borrowing costs.

In cryptocurrencies, bitcoin rose 5.9% to $81,000 on Friday — its third straight day of gains — as it extended a rebound from Tuesday's sharp selloff, when the US Senate failed to advance comprehensive cryptocurrency legislation in a setback for digital-asset companies.

(Reporting by Harry Robertson in London and Gregor Stuart Hunter in Singapore; Editing by Clarence Fernandez, Peter Graff and Chizu Nomiyama)