Dollar-Yen Pulls Back as Greenback Loses Steam

The US dollar has taken a breather against the Japanese yen, stepping back from a two-week peak reached earlier on September 22, 2025. After climbing to its highest level since early September during Asian trading, the dollar-yen pair eased to around 147.73 by the American session. The greenback’s recent surge, fueled by the Federal Reserve’s cautious approach to interest rate cuts, appears to be losing momentum as traders reassess the outlook for both US and Japanese monetary policies.

The dollar’s initial rally came on the heels of the Fed’s recent quarter-point rate cut, its first in over four years. While the move sparked a brief dip to the dollar’s lowest level since early 2022, optimism quickly returned as Fed officials emphasized a slow, data-driven approach to further cuts. However, fresh remarks from a Fed official on Monday stirred debate, warning that current high interest rates could lead to job losses if left unchanged.

This call for bolder rate reductions has tempered the dollar’s upward drive, giving the yen room to recover some ground.

Meanwhile, Japan’s central bank held its key interest rate steady at 0.50% last week but hinted at a gradual shift toward tighter policy. Officials noted that inflation is nearing their 2% target, with risks like rising food prices and potential US tariffs adding pressure. Despite deeply negative real interest rates, the bank stressed that sustained wage growth is crucial before more significant rate hikes. Some policymakers pushed for a small increase, but the overall tone remains cautious, keeping the yen’s movements subdued.

Looking ahead, markets are gearing up for a busy week. Tuesday brings early US business activity data, alongside more Fed commentary, which could sway the dollar’s path. On Wednesday, Japan’s manufacturing and services activity reports will offer clues about the yen’s strength. For now, the dollar-yen pair is settling into a quieter rhythm, with traders balancing Fed caution against Japan’s steady policy stance, setting the stage for potential shifts as new data rolls in.