Diverging monetary policies between the Federal Reserve and Bank of Japan remain the dominant driver of USD/JPY positioning, with the pair trading near 157 as of late October 2026. The Fed’s target range stands at 3.75–4.00% following its September hike, while the BoJ holds at 1.25% after its own September move, creating a still-wide but narrowing spread that has capped recent dollar strength. Hotter Japanese inflation readings, including core CPI near 2.4%, have reinforced expectations for a BoJ rate increase in December, supporting the yen alongside safe-haven flows amid geopolitical tensions and softer U.S. yields. Key near-term catalysts include the Fed’s October 28 decision, U.S. Q3 GDP and PCE data, and the BoJ’s October 30 meeting, which together will refine market-implied odds for further policy divergence through year-end.