Fed-BoJ policy divergence pressures global FX markets

Growing monetary policy divergence between the Federal Reserve and Bank of Japan continues to dominate global currency markets, creating significant volatility across major pairs. The Fed's hawkish stance contrasts sharply with the BoJ's ultra-loose policy, driving substantial yen weakness and supporting USD strength. This divergence has pushed USDJPY toward multi-month highs while creating ripple effects across other yen crosses. Market participants are increasingly concerned about intervention risks from Japanese authorities as the yen approaches critical psychological levels. The policy gap reflects fundamentally different economic conditions, with US inflation remaining sticky while Japan struggles to maintain its 2% inflation target. Risk sentiment has deteriorated as traders navigate these conflicting central bank trajectories. The divergence theme is expected to persist until either the Fed signals a dovish pivot or the BoJ hints at policy normalization, keeping volatility elevated in yen pairs.