Yen Drops 1% After BOJ Rate Hike
The Japanese yen fell 1% against the US dollar following a 25 basis point rate hike. The currency traded at 158 per dollar. The Bank of Japan raised rates to 1.25%. This is a 31-year high.
The Japanese yen weakened by more than 1% against the US dollar on Friday. The currency traded at 158 per dollar in Asian markets. It also fell against the Singapore dollar. The rate stood at 123.4 per Singdollar. The Bank of Japan hiked rates by 25 basis points. The new policy rate is 1.25%. This level marks a 31-year high. The move came amid renewed inflation concerns.
The rate hike was widely expected by markets. However, the decision was not unanimous. The vote was split 7-2. Two board members dissented. The dissenters were Toichiro Asada and Ayano Sato. The split vote introduced caution. It limited the central bank's hawkish signal. No updated outlook report accompanied the decision. This restricted the BOJ's ability to guide markets.
Fed hikes widen rate gap
The US Federal Reserve hiked rates earlier this week. The Fed raised its target to 3.75-4.00%. This widened the interest rate gap between the US and Japan. The wider gap pressured the yen further. BlackRock noted that energy costs add to inflation risks. The yen had already slipped after the Fed's move. The BOJ hike did not reverse this trend. The currency remained weak against the greenback.
Historic intervention efforts persist
US Treasury officials bought yen in July. This was the first such intervention since 1998. The move aimed to prop up the currency. Japan spent a record 15.4 trillion yen on intervention. This sum equals US$98.3 billion. The spending occurred through August 26. The yen strengthened to 120-121 per Singdollar in early August. It subsequently weakened back to around 123. These levels reflect ongoing market pressure.
Analysts see limited appreciation
Analysts expect limited yen appreciation in the near term. The rate hike was well priced in. Julius Baer notes two more hikes are expected by July 2027. This would bring the rate to 1.75%. JPMorgan warns of risks to rate differentials. A potential delay in further hikes weighs on the yen. The Fed's hawkish stance remains a key factor. The currency faces continued pressure from these dynamics.
