Japanese Yen: Bank of Japan Raises Interest Rates

The Japanese yen extended losses against the pound, dollar and other major currencies after the Bank of Japan raised its policy rate to the highest level since 1995.

The central bank raised its base rate 25 basis points to 0.75%.

The decision was an admission by the BoJ that inflation has been above its target for nearly four years.

The move lifted the 10-year government bond yield to 2%, its highest level since May 2006.

Despite the hike, the yen weakened slightly, reflecting the reality that the market has long expected the move.

The pound to yen rises to 209.01 on Friday, its highest level since 2008. The dollar to yen rate rises to 156.23, putting a test of the 2025 high at 157.89 on the cards for the coming days and weeks.

"The statement is not hawkish enough for the market, and USD/JPY was sent higher. The Board has not upgraded its assessment of the economy and still sees some weakness in parts," says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.

The yen is clearly under pressure, and for it to turn direction, the BoJ will need to signal it is committed to raising interest rates further. However, the central bank stuck to its cautious tone and did not offer much forward guidance.

However, there were some snippets to embolden JPY bulls: the accompanying statement reiterated that it intends to keep increasing the policy rate if its economic outlook is realised.

The BoJ also noted that the chances of that happening are increasing, citing that underlying inflation is continuing to rise moderately.