The Japanese yen rose broadly in Asian trading on Friday against a basket of major and minor currencies, beginning to recover from its lowest level in nearly two weeks against the US dollar, amid strong demand for the currency as one of the best available investment opportunities, especially after the Bank of Japan’s eventful monetary policy meeting.
In line with expectations, the Bank of Japan kept its short-term interest rate unchanged for the fifth consecutive meeting. However, the decision passed with only seven of nine members in favor, as two voted for a rate hike—an unusual split that surprised markets.
The Bank of Japan also announced it would begin selling its holdings of exchange-traded funds, signaling a gradual move away from ultra-loose monetary policy and the unwinding of the massive stimulus program that had persisted for years.
Price Overview
•Japanese yen exchange rate today: The dollar fell by about 0.55% against the yen to ¥147.20, from the opening level at ¥147.99, with the session high at ¥148.11.
•The yen ended Thursday down 0.7% against the dollar, marking a second consecutive daily loss, and hit its lowest level in nearly two weeks at ¥148.27, pressured by strong US dollar buying from low levels after positive US economic data.
Bank of Japan
In line with expectations, the Bank of Japan decided on Friday to make no changes to its current monetary policy tools, keeping interest rates unchanged at 0.50%, the highest level since 2008, for the fifth consecutive meeting.
The Bank of Japan keeps interest rates unchanged
The decision passed with seven out of nine board members voting in favor, while two voted for a hike—an unusual split that added an element of surprise for global financial markets.
In the two-day meeting that concluded just recently, the Bank of Japan decided to sell its ETF holdings in the market at an annual pace of about ¥330 billion. It also decided to sell real estate investment trusts at an annual pace of about ¥5 billion.
The announcement of asset sales is seen as a clear signal of a gradual retreat from ultra-loose monetary policy and the unwinding of the massive stimulus program maintained for many years.
Monetary Policy Statement
In its policy statement update, the Bank of Japan said core inflation in Japan is expected to stagnate due to slowing economic growth but will gradually accelerate thereafter.
The bank added that Japan’s economic growth is expected to slow due to the impact of trade policies on global growth, but will later regain momentum.
The bank explained that it unanimously decided to sell these assets in the market based on basic principles for their disposal, including the principle of avoiding destabilizing effects on financial markets.
Japanese Interest Rates
•Following the meeting, pricing for the likelihood of the Bank of Japan raising interest rates by 25 basis points at the October meeting rose to above 75%.
•To reprice those odds, investors are now awaiting further data on inflation, unemployment, and wage levels in Japan.
Kazuo Ueda
Bank of Japan Governor Kazuo Ueda is scheduled to speak later today about the results of the monetary policy meeting, and his comments are expected to provide stronger clues on the outlook for policy normalization and Japanese interest rate hikes throughout the year.
