Karen Brettell
NEW YORK (Reuters) – The Japanese yen hit a four-month high against the dollar on Wednesday after the Bank of Japan raised interest rates to their highest since 2008 and suggested more hikes could come. The dollar was broadly weaker ahead of the Federal Reserve’s statement.
The Bank of Japan raised its target overnight call rate from 0-0.1% to 0.25%, its biggest augment since 2007.
“Many market participants were preparing for this as if it was a possibility, but few actually expected the BOJ to raise rates by more than 10 basis points,” said Helen Given, a currency trader at Monex USA in Washington.
“This unexpected move has been a big boost for the yen, especially as people think the Fed could start announcing a September rate cut this afternoon,” Given said.
Japan’s interest rate hike comes just months after the Bank of Japan ended an eight-year period of negative interest rates, with the bank’s chief seeking to end his predecessor’s unusual policies.
The Japanese central bank also announced plans to halve its monthly purchases of Japanese government bonds (JGBs) to 3 trillion yen from January to March 2026.
The yen has rallied since hitting a 38-year low of 161.96 against the U.S. dollar on July 3, largely boosted by interventions from Japanese authorities. Traders unwinding tiny bets on the yen helped fuel the move.
Japanese authorities have spent 5.53 trillion yen ($36.8 billion) on foreign exchange intervention this month to shore up the currency, official data showed on Wednesday.
The dollar last fell 1.68% to 150.2 yen and fell to 149.79, its lowest level since March 19. The greenback is on track to post a monthly loss of 6.7% against the Japanese currency, which would be its biggest loss since November 2022.
The Fed is expected to keep interest rates unchanged after its two-day meeting ends Wednesday. Analysts and traders will be looking for modern clues that cuts are likely to begin in September as inflation eases and the job market calms.
The dollar fell 0.46% to 103.9 against a basket of currencies and is on track for a monthly loss of 1.3%.
Traders are already eyeing a rate cut in September and a second, and possibly third, cut by the end of the year.
The next major U.S. economic report that is likely to drive Fed policy will be Friday’s government jobs report for July. It is expected to show that employers added 175,000 jobs during the month, according to the median estimate of economists polled by Reuters.
The ADP National Employment Report released Wednesday showed that private-sector employment rose by 122,000 jobs this month, below economists’ expectations of a 150,000 job gain.
The Australian dollar fell to a three-month low of $0.6480 and was last down 0.12% at $0.6529 on a weaker core inflation reading.
Following the release of the data, markets abandoned speculation about the possibility of a further interest rate hike by the Reserve Bank of Australia.
The euro gained 0.28% to $1.0845 and is forecast to rise about 1% in July.
Eurozone inflation unexpectedly rose in July, data released on Wednesday showed, even as the widely-watched services price growth indicator worsened.
The pound rose 0.12% to $1.285 and is heading for a monthly gain of 1.6%.
Sterling options volatility rose to its highest level in almost a year, reflecting the degree of nervousness ahead of Thursday’s Bank of England interest rate decision, with markets pricing in a 65% probability of a rate cut.
In the cryptocurrency market, bitcoin rose 0.41% to $66,443.
