The dollar is on track for its best weekly advance in three months while the yen heads for its worst week since October 2025, even after the Bank of Japan raised rates to a 31-year high. Traders judged the hike too cautious, but a reported BoJ rate check pared some of the yen's losses late Friday.
The yen is set for its worst week since October 2025 after the Bank of Japan's rate decision failed to convince traders the central bank is serious about tightening. The dollar, meanwhile, is riding its best weekly gain in three months on a hawkish Federal Reserve.
BoJ hike seen as not aggressive enough
The Bank of Japan lifted its benchmark borrowing costs by 25 basis points to 1.25%, a 31-year high, as the country contends with a weak currency and soaring energy costs. The move was widely anticipated, but two BoJ board members dissented and voted to stand pat instead.
That split softened the central bank's hawkish tone and dampened expectations for rapid follow-up tightening. Higher rates usually strengthen a currency, but the hike instead triggered a wave of profit-taking across foreign exchange desks. Governor Kazuo Ueda said the BoJ was acting preemptively to avoid being forced into drastic moves later, though it was not contemplating aggressive monetary shock therapy.
The yen fell to as low as 158.05 per dollar on Friday, then pared losses to as much as 155.88 after Nikkei reported the BoJ had conducted a rate check — contacting currency market participants about exchange rate levels, typically a preliminary step before intervention. Authorities in Tokyo have already spent over 15 trillion yen ($95.70 billion) this year to keep the currency afloat.
Hawkish Fed keeps dollar near seven-week high
The dollar index slipped 0.1% to 100.22 on Friday. Still, it gained 1.1% for the week, its best weekly performance since mid-June. The advance follows the Federal Open Market Committee's decision to raise the federal funds rate to 3.75%-4.00% from 3.50%-3.75%, its first hike since July 2023.
Odds of the rate hike had surged to 90% ahead of the FOMC's decision, lifted by spiking oil prices, U.S. economic data, and a rout in the bond market. Treasury yields extended their climb on Friday, with the 10-year yield up 6.1 basis points to 5.008%, after soaring to an over 19-year high earlier in the week.
According to José Torres, senior economist at Interactive Brokers, the yen's slide is feeding back into U.S. rates because Tokyo is the largest foreign holder of Treasuries, and a weaker currency pressures Japanese officials toward selling U.S. debt to fund market intervention.
Source: Investing.com
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