Contrary to the view of most BoJ watchers, the central bank this morning announced a 15 basis point rate hike, decided by a 7-2 majority. It also announced that its bond-buying program will be reduced by about 400 billion yen per quarter, to reach about 3 trillion yen in the first quarter of 2026, from about twice that amount recently, notes Rabobank senior currency strategist Jane Foley.

The yen is strengthening against the US dollar

“The BOJ’s policy statement offers a fairly optimistic assessment of Japan’s economic outlook, saying fixed investment is “on a moderate upward trend” and corporate profits are “improving.” It says wage increases are “spreading across regions, industries, and firm sizes.” That leaves the door open for further rate hikes potentially in slow 2024 or early 2025.”

“While USD/JPY weakened following today’s policy announcement, it had rallied earlier in the session on local press reports that the BoJ was discussing an interest rate hike. While USD/JPY is below intraday lows, it remains below yesterday’s opening levels. We have moved our previous USD/JPY year-end forecast of 152.00 to a 3-month outlook and lowered our 1-month forecast.”

“The next key point for USD/JPY is the Federal Reserve’s policy announcement this evening. The USD was on the defensive for most of July as the market priced in a July Fed rate cut. This helped amplify the impact of suspected Fed intervention from July 11. The USD could weaken a bit more, although we wouldn’t expect a big move in USD following the Fed’s announcement today.”