Wide US-Japan interest rate differentials remain the dominant driver of USD/JPY near 158 as of early October 2026, with the Fed’s policy rate at 3.75-4.00% after its September hike and markets pricing roughly 70% odds of another 25 basis point increase at the October 28 FOMC meeting. In contrast, the Bank of Japan lifted its overnight rate to 1.25% in September and is expected to proceed gradually, with October hike bets scaled back sharply after the latest Summary of Opinions. Elevated US Treasury yields above 5.2% on the 10-year, firm inflation readings, and geopolitical support for the dollar have sustained the pair’s climb, though verbal intervention signals from US and Japanese officials and historical precedent near 160 cap upside. Key near-term catalysts include the October 14 US CPI release and the closely spaced FOMC-BoJ meetings at month-end, which will shape the rate gap and any potential last-minute policy surprises.