Yen Plunges as BOJ Keeps Rates Negative, Fed Stays Hawkish

As we head into the weekend, the Japanese yen has taken a plunge, reaching its lowest point against the US dollar in nearly three years. This dive comes in the wake of a decisive move by the Bank of Japan (BOJ) to maintain its negative interest rate policy. Additionally, the US Federal Reserve has sent a clear signal that it intends to keep interest rates in the United States at elevated levels.

The BOJ, led by Governor Kazuo Ueda, has chosen to retain its key policy rate of -0.1%. Furthermore, they have pledged to persist with their ultra-loose monetary stance until they achieve their target of 2% inflation. Governor Ueda affirmed the central bank’s willingness to adapt its policy as necessary but underscored that the goal of 2% inflation remains distant.

Yen Drops Following Monetary Policy Decision

This policy decision by the BOJ has prompted a sharp drop in the yen’s value against the dollar, with a decline of up to 0.47%, bringing the exchange rate to an 11-month low of 148.41 yen per dollar.

Analysts note that if the yen approaches the 150 yen per dollar level, it could trigger intervention by Japanese authorities to halt the currency’s depreciation. Japan’s Finance Minister, Shunichi Suzuki, has expressed concern about a weakened yen, citing potential harm to Japan’s export-reliant economy. He also indicated that no options would be ruled out to address this issue.

Dollar Soaring to 10th Weekly Gain

Meanwhile, the US dollar has continued its impressive run, notching its tenth consecutive weekly gain against a basket of major currencies. This upward trajectory is bolstered by higher US bond yields and a weakened euro. The dollar index advanced by 0.38% on Friday, reaching 105.78.

The Federal Reserve’s decision to maintain its benchmark rate in the range of 5.25% to 5.5% has contributed to this dollar strength. Their steadfast commitment to holding rates steady until inflation reaches 2% has pushed yields on 10-year US Treasury bonds to levels not seen since 2007, exceeding 4.47%. This situation has made US assets more attractive to investors.

 

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