The Bank of Japan's rate decision lands today, yet the yen has largely priced in the market's recent repricing, meaning Governor Ueda faces a high bar to reignite the currency's rally. Markets already anticipate a 25-basis-point hike, and unless the central bank confirms an exceptionally aggressive path, USD/JPY could find more room to retrace its September losses.

Broad expectations point to a 25-basis-point increase in the policy rate to 1.25%, a mere three months after the last hike in June. The key signal to watch will be Ueda's stance on upcoming meetings. Since summer, the rate curve has undergone a significant revaluation, with markets now pricing roughly four quarter-point hikes over the next year—a challenging trajectory for a central bank that until recently moved at a sluggish pace. The latest survey indicates nearly half of respondents expect this cycle to push the policy rate to 1.5% or even 1.75%.

Using any of the previous four hikes as a template to gauge USD/JPY's subsequent performance yields little insight. Over the 24 hours following those hikes, USD/JPY averaged a 0.58% decline, but the range is too wide and the direction inconsistent. The last two hikes saw the yen weaken instead, aligning with a "sell-the-news" market logic. If Ueda's comments disappoint, a similar scenario could unfold.

The July 2024 hike stands as the clearest precedent for a sharp yen appreciation, but the crucial factor then was that markets hadn't priced it in. The prior repricing already accomplished a substantial portion of the groundwork for yen gains. Earlier this month, USD/JPY dipped to 152.89 as expectations for faster BOJ tightening grew. Consequently, the bar has shifted from convincing markets of a September hike to persuading them that it ushers in a quicker pace. If Ueda fails on that front, the pair could give back more of this month's losses, especially with the Fed pushing in the opposite direction.