BoJ hikes rates to 31-year high, yen falls against Singdollar
The Japanese currency fell over 1 per cent against both the Singapore dollar and US dollar after the 25 basis point increase to 1.25 per cent.
Yen weakens after BOJ rate increase
The Japanese yen depreciated sharply on Friday (September 18), falling more than 1 per cent against both the Singapore dollar and the US dollar. This occurred after the Bank of Japan (BOJ) increased its policy rate by 25 basis points, bringing it to 1.25 per cent. The new rate marks a 31-year high for Japan's central bank.
As of 4.11 pm in Asia on Friday, the yen was trading at 123.4 per Singdollar and 158 per US dollar. This weakening followed a similar trend earlier in the week, when the US Federal Reserve also raised its rates.
Split vote causes investor caution
While the Bank of Japan's rate increase was largely anticipated by market participants, the decision was not unanimous. The central bank's board recorded a 7-2 split vote, with members Toichiro Asada and Ayano Sato dissenting. This internal disagreement introduced a degree of caution among investors, as it did not strongly support immediate expectations for further rate hikes.
Masahiko Loo, a senior fixed income strategist at State Street Investment Management, pointed to these dissents and the lack of an updated outlook report as key factors behind the yen's initial depreciation, suggesting they hindered the BOJ's capacity to deliver a firmer hawkish message.
Wider rate gap and past interventions
The Bank of Japan's move followed an earlier rate hike by the US Federal Reserve this week, which brought US rates to between 3.75 and 4 per cent. This widened the interest rate differential between the two economies.
BlackRock Investment Institute noted that this gap, alongside rising energy costs, intensified pressure on the BOJ to tighten policy and address imported inflation. Earlier this year, the US Treasury intervened on July 31 to bolster the yen, marking its first such action since 1998.
Japan itself spent a record 15.4 trillion yen (US$98.3 billion) on currency intervention through August 26, though the yen still weakened to around 123 against the Singdollar in early August after a brief strengthening.
Looking ahead, analysts project only limited near-term appreciation for the Japanese yen, as the recent rate increase was largely factored into market prices. Magdalene Teo, a fixed income analyst for Asia at Julius Baer, noted that markets currently price in two more rate hikes by July 2027, which would elevate Japan's policy rate to 1.75 per cent.
Tai Hui, Asia-Pacific chief market strategist at JPMorgan Asset Management, cautioned that the US Federal Reserve's hawkish policy creates risks for the convergence of Japan-US interest rate differentials, potentially maintaining downward pressure on the yen.
Any delay in the Bank of Japan's anticipated future rate increases would further hinder the currency's recovery, impacting the cost of imports for Asian businesses and the returns for investors holding yen-denominated assets.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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