Bank of Japan Raises Interest Rates and Unveils Bond-Buying Taper Plan, Yen Swings in Response
By Rae Wee
In a highly anticipated move, the Bank of Japan (BOJ) raised interest rates and detailed a plan to taper its bond-buying program, leading to a rollercoaster ride for the yen on Wednesday. The Japanese currency initially surged to a three-month high against the dollar before quickly retracing its gains.
Following the BOJ announcement, the yen was marginally lower at 152.79 per dollar. The central bank’s decision to raise the overnight call rate target to 0.25% and halve monthly bond buying to 3 trillion yen by early 2026 was met with mixed reactions from the market.
Analysts had already predicted a hawkish stance from the BOJ, with news reports hinting at a potential rate hike. This led to a strong performance for the yen in July, supported by intervention from Tokyo and unwinding of carry trades.
Looking ahead, investors will be keeping a close eye on inflation data from France and the euro zone, as well as the U.S. Federal Reserve’s policy decision. Geopolitical tensions and economic indicators, such as China’s manufacturing activity, continue to influence market sentiment.
Australian dollar weakened after core inflation data fell short of expectations, reducing the likelihood of a rate hike. The currency was down 0.68% at $0.6494, heading for a monthly loss of over 2%. Meanwhile, the euro and sterling saw gains, while the New Zealand dollar was on track for a 3% drop in July.
Traders are now awaiting the Fed’s rate decision, with expectations of a September rate cut. The Fed is expected to signal the start of an easing cycle, with markets pricing in cuts for the rest of the year. The yen and the dollar were both set for monthly losses, reflecting uncertain market conditions.
Overall, the BOJ’s decision and global economic indicators highlight the interconnectedness of financial markets and the impact of central bank policies on currencies. Investors should stay informed and adapt their strategies to navigate volatile market conditions and potential opportunities for growth.