SINGAPORE, Aug 1 Reuters The U.S. dollar was on the back foot on Thursday after the Federal Reserve opened the door for an interest rate cut in September, helping keep the yen pinned near its highest since March in the wake of a hawkish pivot from the Bank of Japan.

An actionpacked Wednesday started with the BOJ raising Japan rates to levels not seen in 15 years, leading to traders reassessing popular carry trades before the Fed held rates steady but put rate cuts on the table as US inflation cools.

The yen was volatile in early trade, surging nearly 1 to 148.51 per dollar, its highest since midMarch before settling at 149.95.

BOJ normalisation and Fed cut in due course represent a shift from FedBOJ policy divergence to convergence, said Christopher Wong, currency strategist at OCBC.

Policy convergence should change the direction of travel for USDJPY to the downside. The risk here is that Fed doesnt play ball, he said.

The BOJ also announced plans to halve its monthly Japanese government bond purchases as of JanuaryMarch 2026, with Governor Kazuo Ueda not ruling out another hike this year.

The yen surged 7 in July, its strongest monthly performance since November 2022, after starting the month rooted near 38 year lows in large part due to bouts interventions by Japanese authorities that totalled 36.8 billion.

Those interventions led to an unwinding of profitable carry trades, in which traders borrow the yen at low rates to invest in dollarpriced assets for higher…