Global: Japanese Yen Declines Despite Historic BOJ Policy Shift; Dollar Strengthens

The Japanese yen saw a significant decline on Tuesday following the momentous decision by the central bank to terminate its negative interest rate policy, while the dollar gained ground in anticipation of the upcoming Federal Reserve meeting on interest rates.

In a historic departure from decades of substantial monetary stimulus, the Bank of Japan (BOJ) concluded its two-day policy meeting by ending eight years of negative interest rates and other unconventional policies. Despite this, the yen experienced a drop of up to 1% against the dollar, slipping below the 150 mark, as the majority of investors had already factored in the policy change.

At present, the yen stands at 150.55 against the dollar and slid by 0.7% against the euro to 163.22, approaching its weakest level in three weeks. Bart Wakabayashi, Tokyo branch manager at State Street, remarked, “It’s a classic ‘buy the rumour, sell the fact.’ I don’t think the BOJ was going for the shock-and-awe approach this time.”

With Japan’s first interest rate hike in 17 years, the BOJ announced its intention to guide the overnight call rate, its new policy rate, within a range of zero to 0.1%. The central bank also indicated that it anticipated “accommodative financial conditions” to persist for the foreseeable future, likely maintaining pressure on the yen due to significant interest rate differentials between Japan and the United States.

Lee Hardman, currency strategist at MUFG, noted, “The market has taken it as a green light to increase the short yen positioning that was already in place, given the forward guidance from the BOJ was fairly cautious.”

This week is marked by several central bank decisions, with the U.S. Federal Reserve’s meeting taking center stage. Although the Fed is expected to maintain interest rates unchanged, uncertainty lingers regarding the future trajectory of monetary policy.

Gareth Berry, FX and rates strategist at Macquarie, emphasized, “Anytime the Fed and the BOJ are moving policy settings at about the same time, it’s always the Fed that rules and dominates the price action, even in dollar/yen.”

Amid these developments, the dollar index, which measures the performance of the U.S. currency against six others, stands near a two-week high, reflecting a 0.35% increase on the day at 103.94.

In the cryptocurrency market, bitcoin and ether saw declines, with bitcoin dropping by as much as 7% to reach two-week lows, following last week’s record highs that prompted profit-taking. Bitcoin, the largest cryptocurrency by market value, was last down 7% at $62,659, while ether fell 8.7% to $3,204.