The Bank of Japan raised its policy rate by a quarter point to 1.25%, the highest level since 1995, but two dissenting votes sent USD/JPY swinging before it pared its gains. Governor Ueda said the central bank would keep raising rates as inflation risks build, while fresh data showed core inflation easing back below the BoJ's 2% target.
The Bank of Japan raised its target interest rate by a quarter of a percentage point to 1.25%, its highest level in 31 years. Two board members opposed the move, and that split vote, not the widely expected quarter-point hike itself, is what moved currency markets.
Yen swings after split vote
The yen fell 0.72% to 157.10 per dollar, down from about 153.40 at the start of the week, Deutsche Bank strategist Jim Reid said, as traders reacted to the two dissents rather than the hike itself.
USD/JPY then pulled back to 156.70 from 157.10, paring its earlier gains, as Governor Ueda held his post-decision press conference. The decision was carried on a 7-2 vote, with board members Toichiro Asada and Ayano Sato dissenting.
Ueda keeps hikes on the table
Ueda said the BoJ would continue to raise its policy rate and adjust the degree of monetary easing in response to economic activity and prices. He added that underlying inflation is approaching the 2% level but that the risk of it overshooting the target is growing, and he made no pre-commitment on the timing of further moves.
The Bank of Japan said in its statement that it would "continue to raise the policy interest rate and adjust the degree of monetary accommodation," language it also used after its previous rate hike in July.
Inflation running below target
Ahead of the decision, August core inflation, which excludes fresh food, eased to 1.7%, below consensus. Domestic price pressures in Japan remain modest.
The BoJ has been raising rates since 2024, when it lifted its policy rate out of negative territory, under pressure as the yen weakened steadily against the dollar this year.
Sources: The Guardian, Investinglive, ActionForex
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