Japanese Yen: BoJ hike fails to lift JPY against US Dollar – Danske Bank

Danske Bank’s Danske Research Team notes that the Bank of Japan raised its policy rate to 1.25% with a 7-2 vote, signalling continued but cautious tightening. Despite the move and guidance to keep raising rates, USD/JPY traded above 157.00, reflecting disappointment versus jumbo-hike speculation and doubts about back-to-back increases, especially given modest Japanese inflation and the presence of two government-appointed dissenters.

Yen weak despite BoJ rate hike

"USD/JPY rose to around 157 this morning, up roughly one figure following the BoJ's widely anticipated 25bp hike to 1.25%. While the hike itself was fully priced, the 7-2 vote was more notable, with Board members Toichiro Asada and Ayano Sato dissenting."

"The BoJ highlights its intention to "continue to raise the policy interest rate and adjust the degree of monetary accommodation", just like it did in July. Even so, USD/JPY traded above 157 levels on the decision. This reflects some speculation in recent weeks of a potential jumbo hike and the fact that it does not sound like a central bank ready for back-to-back rate hikes, not least considering the two dissenting votes."

"They were cast by two board members appointed by PM Takaichi, indirectly highlighting the government's stance on the matter. Ahead of the decision, August CPI inflation excluding fresh food edged a bit lower to 1.7%, below consensus. Domestic price pressures in Japan remain quite modest."