Global Policy Split: Central Banks Diverge as USDJPY Extends Bullish Run

Global monetary policy took a mixed turn this week as central banks responded to diverging economic conditions. The Bank of Canada shifted toward easing, cutting rates to support a slowing economy, while the U.S. Federal Reserve delivered a modest rate cut but maintained a cautious stance amid lingering inflation risks. In contrast, the Bank of Japan signaled the possibility of a rate hike in December, and the European Central Bank opted to keep rates steady, emphasizing a data-dependent approach. This divergence in policy paths continues to drive volatility in major currency pairs, with USDPY extending its bullish momentum amid widening yield differentials.

Bank of Canada Cuts Rate to 2.25% Amid Economic Weakness

The Bank of Canada cut its policy rate by 25 basis points to 2.25%, citing ongoing economic weakness and the effects of U.S. trade actions. The Bank expects GDP growth of 1.2% in 2025, 1.1% in 2026, and 1.6% in 2027, as exports and business investment gradually improve.

Canada’s economy contracted 1.6% in the second quarter, with trade-sensitive sectors such as autos, steel, and lumber hit hard, though consumer and government spending remain supportive. The unemployment rate stood at 7.1% in September, reflecting a soft labor market and slowing wage growth.

Inflation was 2.4% in September, with underlying measures near 2.5%, and is expected to stay close to the 2% target over the forecast horizon. The Bank said the current rate level is appropriate to balance price stability and growth but emphasized readiness to adjust policy if conditions change.

Fed Cuts Rates to 3.75%–4% as Growth Slows and Risks Rise

The Federal Reserve lowered its benchmark interest rate by 0.25 percentage points to a range of 3.75%–4%, citing moderate economic growth, slower job gains, and elevated inflation. Policymakers noted increased downside risks to employment and maintained their commitment to achieving maximum employment and 2% inflation over the long run. The Fed also announced it will conclude the reduction of its securities holdings on December 1. Future policy decisions will depend on incoming data and the balance of risks, with officials ready to adjust rates if economic conditions change.

Technical Analysis

Since breaking out of a two-month consolidation phase, USDJPY extended its upward trajectory, reaching 154.434 on October 30 and signaling renewed bullish momentum. The initial breakout was marked by a strong breakaway gap, confirming the bulls’ commitment to drive the pair higher. Prices have since remained above both the 20- and 50-period Exponential Moving Averages (EMAs), with both slopes pointing upward — a clear sign of trend continuation and underlying market strength.

From an analytical standpoint, technical indicators continue to support the bullish outlook. The Momentum Oscillator is firmly positioned above the 100 baseline, while the Relative Strength Index (RSI) hovers near the overbought 70 level, reflecting persistent buying pressure. A decisive break above the recent high at 154.434 would likely open the door for further gains toward the next resistance zone, reinforcing the prevailing bullish bias.

Should the bulls maintain control, resistance levels to watch are 155.603, 159.455, and 163.307. Conversely, key support levels are seen at 153.263, 150.854, and 149.370.

BOJ Signals Possible December Rate Hike as Wage Data Takes Center Stage

The Bank of Japan kept its policy rate unchanged at 0.5% but signaled that a rate hike could come as soon as December, depending on wage growth trends. Governor Kazuo Ueda said the central bank wants to see more data on the “initial momentum” of next year’s wage negotiations before deciding. Two board members again pushed for an immediate hike to 0.75%, underscoring a growing divide within the policy board.

Despite Ueda’s hawkish tone, the yen weakened sharply, hitting its lowest level since mid-February against the U.S. dollar. Analysts believe the BOJ is edging closer to tightening policy, with inflation staying above 2% and Japan’s economy showing resilience despite U.S. trade pressures. Most economists expect a rate increase by early 2026, possibly as soon as the next policy meeting in December.

ECB Stays on Hold as Inflation Nears Target

The European Central Bank kept its key interest rates unchanged, with the main refinancing rate at 2.15%, the deposit rate at 2.00%, and the marginal lending rate at 2.40%. Policymakers said inflation remains close to the 2% medium-term target, and the overall outlook is broadly stable, supported by a resilient labor market and earlier rate cuts.

The ECB maintained a cautious, data-dependent approach amid ongoing global trade tensions and geopolitical risks. It also confirmed that its asset purchase and pandemic emergency portfolios continue to decline as reinvestments have stopped. The Governing Council reiterated its readiness to adjust all policy tools if needed to ensure inflation remains anchored around the 2% target and to safeguard smooth monetary transmission across the euro area.

Conclusion

Global monetary policy is entering a phase of divergence, with central banks adjusting their stances based on domestic conditions and inflation dynamics. While the Bank of Canada and the Federal Reserve have opted for rate cuts to support slowing growth, the Bank of Japan is edging toward tightening, and the European Central Bank remains on pause. This policy split is creating shifting capital flows and renewed volatility in major currency pairs, particularly USDJPY. Going forward, markets are likely to stay sensitive to incoming inflation and labor market data, as policymakers balance growth concerns against the need to maintain price stability.