Japanese Yen faces pressure against US Dollar as BoJ leaves interest rates unchanged at 0.75%

USD/JPY claws back slight early losses as the JPY faces pressure after the BoJ’s interest rate decision.
The BoJ has kept interest rates steady at 0.75%, as expected.
On Wednesday, the Fed indicated that it won’t cut interest rates until inflation starts cooling down.

Sagar Dua FXStreet

The Japanese Yen (JPY) faces selling pressure against the US Dollar (USD) after the Bank of Japan (BoJ) decided to leave interest rates unchanged at 0.75%. Still, the USD/JPY pair is 0.14% down to near 159.70 as the US Dollar underperforms its peers.

The BoJ was expected to hold interest rates steady as surging oil prices due to conflicts in the Middle East, involving the United States (US), Israel, and Iran, have raised concerns over Japan’s economic outlook.

This is the second straight meeting when the BoJ has left interest rates steady. Meanwhile, investors await BoJ Governor Kazuo Ueda’s press conference for fresh cues on the monetary policy outlook.

On Tuesday, BoJ’s Ueda expressed confidence that prices and wages will continue to accelerate ahead of the monetary policy announcement on Thursday. “Expect underlying inflation to converge toward our target in the latter half of fiscal 2026 through fiscal 2027,” Ueda said.

During the press time, the US Dollar trades slightly lower after a sharp upside move on Wednesday, following the Federal Reserve’s (Fed) monetary policy outcome. In the policy announcement, the US central bank left interest rates unchanged in the range of 3.50%-3.75%, as expected, and signaled that monetary policy adjustments will be appropriate only if inflation starts showing signs of easing.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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