Bank of Japan Maintains Ultra-Loose Stance in Latest Meeting as Yen Stumble

The Bank of Japan kept its ultra-low interest rates and dovish posture on Friday, which caused the Japanese yen to tremble. Meanwhile, the dollar battled to cling to its gains from the previous day as the anticipation of a change in outlook by the Federal Reserve grew.

In the wake of the central bank’s decision, the yen dropped almost 0.4% to a session low of 146.90 per dollar, although it eventually turned around and managed to gain a tiny amount. At the time of writing, the USD/JPY pair was trading at 147.55, up 0.89%.

Bank of Japan Keeps Interest Rate at -0.1%

The Bank of Japan (BOJ) maintained its -0.1% short-term interest rate objective and commitment to keep the yield on 10-year bonds at or around the ground level at 0%, as was generally anticipated, although it increased its inflation projections.

Commenting on the latest development, Christopher Wong, a currency strategist at OCBC, narrated:

“The choppy price action suggests that markets were hoping for a tweak in BOJ’s policies and also reflects the upward revision to the core CPI forecast.”

While the European Central Bank (ECB) lifted rates by 0.75% as anticipated, it did so with a more dovish tone about its interest rate outlook, which resulted in the euro (EUR) attempting to break above parity again after a dramatic overnight decline of more than 1%. The euro reached a high of $0.9998 before gaining 0.19% to close at $0.99835.

In its statement for September, the ECB mentioned raising rates “over the next several meetings,” which markets interpreted to suggest that a string of significant interest rate hikes was coming to an end.

Commenting on the ECB’s outlook, Carol Kong, a currency strategist at the Commonwealth Bank of Australia, noted:

“The ECB policy decisions were less hawkish than most had expected. Most of the surprise came, really, from the comments [by] Christine Lagarde saying that the ECB has already made substantial progress in withdrawing policy stimulus.”

A weaker dollar, which has fallen this week on expectations of a likely Fed turn, supported gains in other major currencies for the day.