Japanese Yen remains stronger as BoJ delivers a rate hike

USD/JPY holds losses as the Japanese Yen remains stronger following the BoJ’s 25-basis-point interest rate hike to 1%.
The US Dollar may further advance as traders adopt caution ahead of further US-Iran peace talk updates.
The Federal Reserve is widely expected to hold interest rates steady at 3.50% to 3.75% this Wednesday.

Akhtar Faruqui FXStreet

USD/JPY depreciates after two days of gains, trading around 160.10 during the Asian hours on Tuesday. The pair remains subdued as the Japanese Yen (JPY) holds ground following the release of the interest rate decision by the Bank of Japan (BoJ).

The BoJ decided to increase the short-term interest rate by 25 basis points (bps) to 1% after concluding the two-day monetary policy review meeting on Tuesday. The decision came in line with the market expectations.

However, the downside of the USD/JPY pair could be restrained as the US Dollar (USD) receives support from the market caution ahead of further developments regarding US-Iran peace talks.

Both Washington and Tehran have not released the official text of the agreement; major shipping lines are delaying vessel rerouting through the strategic waterway until full transparency is established.

Even though US President Donald Trump announced that a memorandum of understanding (MoU) has been signed to end the conflict and reopen the blockaded Strait of Hormuz, market participants remain deeply cautious. According to Iran's semi-official Mehr news agency, the current draft calls for the strait to reopen within 30 days under Iranian arrangements.

The Federal Reserve (Fed) is widely expected to keep its benchmark interest rate unchanged at a target range of 3.50% to 3.75% at its upcoming policy meeting on Wednesday. Traders will be closely monitoring the press conference for cues on how new Fed Chair Kevin Warsh intends to lead the central bank into its next era.

Economic Indicator

BoJ Interest Rate Decision

The Bank of Japan (BoJ) announces its interest rate decision after each of the Bank’s eight scheduled annual meetings. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and raises interest rates it is bullish for the Japanese Yen (JPY). Likewise, if the BoJ has a dovish view on the Japanese economy and keeps interest rates unchanged, or cuts them, it is usually bearish for JPY.

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The rate did not move. Neither did the statement, and that’s the more interesting fact. Set the July 29 Federal Open Market Committee (FOMC) statement beside the one issued on June 17, and the two documents are identical apart from a single verb and a paragraph at the bottom naming three dissenters.