Yen under pressure after BOJ holds rates steady

The currency was slightly weaker at 158.54 following the BOJ’s rate decision

The yen stayed under pressure after the Bank of Japan held rates steady on Friday. The currency was slightly weaker at 158.54 following the BOJ’s rate decision and after it raised its economic and inflation forecasts, highlighting the central bank’s readiness to continue hiking still-low borrowing costs.

Last month, the BOJ raised its policy interest rate to a 30-year high but that has not helped the frail yen. Traders are concerned that a break beyond 160 per dollar could prompt Tokyo to step into the currency market to support the yen.

Moh Siong Sim, FX strategist at OCBC, said the market was hoping the yen’s weakness might trigger a more forceful BOJ response but the central bank maintained the same rhetoric – an outcome that was pretty neutral for markets.

After all, yen indirectly fits into the economic projections if the weakness is sustained, he said.

The spotlight will now be on comments from Governor Kazuo Ueda to gauge when the next hike will come and whether there is any hawkish tilt to support the yen. Ueda will hold a news conference to explain the decision at 0630 GMT.

Governor Ueda in his remarks will likely lean into a more hawkish direction, which may keep the next meetings ‘live’ for a further policy rate hike, said Fred Neumann, chief Asia economist at HSBC.

The Board appears to be leaning more hawkish as well, with one dissenter at today’s meeting indicating that further policy rate hikes are on the table, he added.

The yen has been under relentless pressure since Sanae Takaichi took over as Japan’s prime minister in October, dropping more than 4% on fiscal concerns and hovering near levels that have spurred verbal warnings and intervention fears.

Carol Lye, portfolio manager at Brandywine Global, said the authorities have to come up with a more concrete plan to calm the markets. If there’s no action, then it’s just words. It’s not going to anchor the market down.

Lye added: And until they do, I think there’s still room for the JGBs across the entire curve to continue being volatile. The rate hikes are also not coming in quickly enough.