Yen Holds Gains After BOJ Governor Ueda Signals Openness to Faster Rate Hikes
Tokyo (Bloomberg) - The yen maintained its gains after Bank of Japan Governor Kazuo Ueda indicated he is open to adjusting the pace of interest rate increases, leaving the central bank's options flexible following its first hike since July.
The Japanese currency appreciated by as much as 0.8% to 154.85 against the dollar after Ueda remarked in a post-decision press conference that the probability of achieving the economic outlook is improving.
Bond yields in Japan's two-year and five-year government bonds initially rose to their highest levels since 2008, while 10-year JGB futures experienced gains, advancing 18 ticks to 140.85.
The central bank signaled that it anticipates a more rapid pace of inflation in the coming years than its previous forecast. Ueda further acknowledged the persistence of uncertainties regarding President Donald Trump's tariff plans, emphasizing that foreign exchange is more likely to influence prices than in the past.
The widely expected rate increase offered welcome news for the struggling yen, which has been impacted by substantial interest rate divergences between the U.S. and Japan, with the Federal Reserve signaling a deceleration in monetary easing. The yen had already appreciated before the BOJ's announcement amid a broader decline in the dollar after Trump declared in an interview with Fox News that he preferred to avoid imposing tariffs on China.
"His acknowledgment that the weak FX is having a greater impact on import inflation suggests a hawkish stance," said Eugenia Victorino, head of Asia strategy in Singapore at Skandinaviska Enskilda Banken. "Nevertheless, the upward revisions in the inflation forecasts have made it challenging to retain a dovish stance." She added that this may drive the market to factor in a higher terminal rate of 1.00% this year, surpassing the previous estimate of 0.75%.
The BOJ's rate increase is its third within a year, bringing the policy rate to its highest point since 2008. Should the yen experience a significant depreciation, Japan may intervene to stabilize the currency, with Minister of Finance Katsunobu Kato recently emphasizing that authorities will take appropriate measures against excessive fluctuations.