Yen Slumps to Two-Week Low Following BOJ Rate Hike
The US dollar climbed 1.2% against the yen to reach 157.84. This marked the largest daily increase since December.
The Japanese yen fell to a two-week low against the US dollar on Friday. The currency weakened after two Bank of Japan policymakers dissented from the decision to raise interest rates. This split vote raised doubts among traders about the pace of future tightening.
The BOJ pushed rates to 1.25%, the highest level in 31 years. However, the move failed to support the currency. Traders cited a lack of explicitly hawkish guidance in the central bank's statement.
Market Reaction to Policy Split
Ray Attrill, head of FX strategy at National Australia Bank, noted the underwhelming response to the hike. He highlighted that the lack of a unanimous vote raised eyebrows in the market. The dissent suggests resistance against the fastest pace of rate increases in over three decades.
Frantisek Taborsky of ING stated the statement offered little additional hawkish guidance. The dissent from policymakers Asada and Sato may act as a brake on further tightening. This uncertainty pressured the yen despite the rate increase.
Intervention Risks and Inflation Data
Finance Minister Satsuki Katayama warned that Tokyo will not hesitate to conduct coordinated action. This follows a joint US-Japan move to boost the yen in late July. Traders remain alert to the risk of government intervention to support the currency.
Japan's core inflation held steady near the central bank's 2% target in August. This data point reinforces the BOJ's focus on price stability. The currency had rallied sharply in early September on bets of multiple hikes, but those wagers came under question on Friday.
Global Currency Trends and Fed Outlook
According to GN auto markets/forex, the US dollar index rose less than 0.1% to 100.31. The index was up 1.2% for the week, reaching a six-week high. This strength followed the US Federal Reserve's rate hike on Wednesday and signals of further increases.
Traders see a 55% chance of a quarter-point hike at the Fed's next meeting. This probability rose from 27% a week ago, according to CME Group data. The euro was 0.1% firmer at $1.149 but set to end the week 1% lower.
