Rate differentials · Fed vs BoJ · priced as of 12 November 2026
USD/JPY interest rate differential: Fed vs BoJ
As of 12 November 2026, the USD/JPY interest rate differential is +275 bp: the Fed's federal funds rate at 4.00% against the BoJ's policy rate at 1.25%, in favour of the US dollar. Markets price the gap at +295 bp in six months; there is no twelve-month figure, because the Fed curve reaches only July 2027.
Over the next six months, markets price the gap to move +20 bp over six months, towards the US dollar. That six-month gap has moved +8 bp in a month.
The rate spread, now and priced ahead
| Fed (USD) | BoJ (JPY) | Gap | |
|---|---|---|---|
| Policy rate now | 4.00% | 1.25% | +275 bp |
| Priced in 6 months | 4.66% | 1.71% | +295 bp |
| Priced in 12 months | curve ends July 2027 | 1.91% | n/a |
| 6-month gap a month ago | 4.54% | 1.66% | +287 bp |
The gap is USD minus JPY, in basis points (100 bp is one percentage point). Six and twelve months out is the rate implied after each bank's last meeting on or before that date. Market pricing, not a forecast. Each bank's meeting-by-meeting odds: Fed · BoJ.
The carry on USD/JPY
The US dollar: the Fed pays 4.00% against 1.25%, a gap of +275 bp. Holding the higher-yielding currency against the lower earns roughly that gap a year before costs, which is what the carry trade collects; a move in the exchange rate can outweigh it.
How the gap feeds the exchange rate, and when it does not: rate differentials explained and the carry trade explained.
Questions
What is the USD/JPY interest rate differential?
As of 12 November 2026, the USD/JPY interest rate differential is +275 bp: the Fed's federal funds rate at 4.00% against the BoJ's policy rate at 1.25%, in favour of the US dollar. Markets price the gap at +295 bp in six months; there is no twelve-month figure, because the Fed curve reaches only July 2027.
Is the Fed–BoJ gap priced to widen or narrow?
Markets price the gap to move +20 bp over six months, towards the US dollar, from +275 bp now to +295 bp. A month ago (13 October) the same six-month gap was priced at +287 bp, so it has moved +8 bp since. That is market pricing, not a forecast.
Which side of USD/JPY has the carry?
The US dollar: the Fed pays 4.00% against 1.25%, a gap of +275 bp. Holding the higher-yielding currency against the lower earns roughly that gap a year before costs, which is what the carry trade collects; a move in the exchange rate can outweigh it.
Where does this pricing come from?
Each bank's priced path comes from the market instrument behind it: Exchange-traded futures for Fed, Exchange-traded futures, WatchTower model for BoJ. The rate six or twelve months out is the one implied after the last meeting on or before that date. The month-ago figure is from our daily snapshot of the same curves.
More on USD/JPY: USD/JPY analysis · USD/JPY retail sentiment · USD/JPY seasonality · US Dollar outlook · US Dollar COT positioning · Fed rate expectations · US economic surprises · Japanese Yen outlook · Japanese Yen COT positioning · BoJ rate expectations · Japanese economic surprises
Other rate differentials: EUR/USD −150 bp · GBP/USD 0 bp · USD/CHF +400 bp · AUD/USD +85 bp · USD/CAD +150 bp · NZD/USD −125 bp · EUR/JPY +125 bp · GBP/JPY +275 bp · AUD/JPY +360 bp · NZD/JPY +150 bp · all 28
In WatchTower Terminal, the Rate spread panel draws the USD/JPY gap against the price. Nothing here is financial advice.