The yen experienced a significant decline against the U.S. dollar, reaching its lowest level in three decades following the Bank of Japan's decision to keep interest rates unchanged. This decision has left markets concerned about potential intervention, particularly if strong U.S. inflation data boosts the dollar further.
During Asian trading, the yen weakened by 0.3% to 156.21 per dollar, its lowest point since 1990. It also depreciated to its lowest level against the euro in nearly 16 years and against the Australian dollar in almost a decade.
The Bank of Japan's decision to maintain its short-term interest rate target at 0-0.1% and slightly adjust its inflation forecast was anticipated by investors, who interpreted it as a signal of minimal policy changes in the near future.
Analysts believe that the BOJ is unlikely to raise rates in the short term, as stated by Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities in Singapore. Consequently, this decision is seen as endorsing the yen carry trade, potentially driving the USD/JPY pair towards 160-161 in the coming weeks.
The yen has experienced a 9.7% decline against the dollar this year, the most significant drop among G10 currencies. This depreciation is largely attributed to the substantial yield gap between U.S. and Japanese government bonds.
Market attention now turns to BOJ Governor Kazuo Ueda's remarks during his news conference, with speculation about potential intervention if the yen's weakness persists. Japanese Finance Minister Shunichi Suzuki has indicated readiness to take action in response to currency movements.
Despite concerns about intervention, traders remain skeptical about Tokyo's ability to reverse the yen's slide given prevailing interest rates and market momentum.
Meanwhile, the Australian and New Zealand dollars strengthened against the yen, with the Aussie on track for its largest weekly gain in five months following higher-than-expected inflation data.
Sterling and the euro remained stable during the Asian session, maintaining gains from the previous day when U.S. economic growth data fell short of expectations.
Paraphrasing text from "Investing" all rights reserved by the original author.
