The Japanese yen (JPY) is falling across the board on Thursday, with USD/JPY rising to an eight-and-a-half-month high after the Bank of Japan (BoJ) left interest rates unchanged at 0.50%. At the time of writing, the pair is trading around 154.16, up nearly 0.90% on the day.
The BoJ is now interested rates stable for five consecutive meetings, following a symbolic hike in January when the interest rate was raised from 0.25% to 0.50%, the first increase in seventeen years. Thursday’s decision reinforces the central bank’s cautious approach as it heads for a fragile recovery amid external headwinds.
The decision was not unanimous. In a 7-2 vote, board members Naoki Tamura and Hajime Takata dissented in favor of a 25 basis point (bps) hike to 0.75%. BoJ Governor Kazuo Ueda in his remarks after the decision, he struck a cautious tone, saying the central bank wanted to “take a little longer to see how the effects of the US tariffs affect the Japanese economy”.
He added that policymakers will “continue to raise the interest rate if the economy and prices move in line with our forecast, in line with the improvement.” Ueda also stressed the need to further examine the outlook for wage growth before committing to any further tightening measures.
Looking ahead, traders will be closely watching the list of Japanese economic data due on Friday, which could influence expectations for the BoJ’s final monetary policy meeting of the year on December 18-19. Key reports include the Tokyo Consumer Price Index (CPI), the unemployment rate, industrial production, retail sales and seasonally adjusted retail sales data. Based on current prices, swap markets are assigning a roughly 25-30% chance of a rate hike at the December meeting.
Adding to the yen’s weakness was renewed buying interest in the US dollar (USD) following Wednesday’s hawkish Federal Reserve (Fed) interest rate cut. While Fed delivered a widely expected 25 basis point cut, with Chairman Jerome Powell stressing that “another rate cut at the December meeting is not a foregone conclusion,” reinforcing a data-dependent stance.
In response, the U.S. dollar index ( DXY ), which tracks the greenback against a basket of six major currencies, rose to a three-month high and was trading around 98.53 at the time of writing.
Economic indicator
Tokyo Consumer Price Index (YoY)
The Tokyo Consumer Price Index (CPI) published by it Statistical Office Japan measures price fluctuations of goods and services purchased by households in the Tokyo area on a monthly basis. The index is widely regarded as the leading indicator of Japan’s overall CPI, as it is published weeks before the national reading. Year-on-year data compares prices in the reference month with the same month of the previous year. In general, a high value is seen as bullish for the Japanese yen (JPY), while a low value is seen as bearish.
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