The Japanese yen experienced a sharp decline on Tuesday following the significant decision by the central bank to end its negative interest rate policy, a move widely anticipated by the market. The U.S. dollar, on the other hand, strengthened ahead of the upcoming Federal Reserve decision on interest rates.
In a historic shift away from years of extensive monetary stimulus, the Bank of Japan (BOJ) concluded its two-day monetary policy meeting by discontinuing its negative interest rates and other unconventional policies, which had been in place for eight years.
Despite this momentous announcement, the yen depreciated by 0.8% against the dollar, slipping below the 150 mark, as most investors had already factored in this change. The yen's value stood at 150.39 against the dollar, and it similarly weakened against the euro, dropping by over 0.7% to reach 163.425, its lowest level in three weeks.
Market analysts noted that the BOJ's decision was largely anticipated, leading to a "buy the rumor, sell the fact" scenario. Bart Wakabayashi, Tokyo branch manager at State Street, remarked that the BOJ's approach this time lacked the element of surprise.
Following Japan's first interest rate hike in 17 years, the central bank announced it would maintain an overnight call rate - its new policy rate - within a range of zero to 0.1%. It also stated its expectation to sustain "accommodative financial conditions" for the foreseeable future.
This move is expected to exert downward pressure on the yen, especially considering the significant interest rate differentials between Japan and the United States.
Meanwhile, all eyes are on the U.S. Federal Reserve, which is set to announce its decision on Wednesday. While it is widely anticipated that the Fed will maintain its current interest rates, there remains uncertainty about the future trajectory of monetary policy.
Gareth Berry, Macquarie's FX and rates strategist, emphasized the dominance of the Federal Reserve in influencing currency market dynamics, particularly in the dollar/yen pair.
The dollar index, which measures the performance of the U.S. currency against a basket of six other major currencies, is currently trading around its highest level in two weeks, reflecting a 0.32% increase at 103.92.
In other developments, the Australian dollar depreciated after the Reserve Bank of Australia (RBA) left interest rates unchanged, signaling a cautious stance on future policy adjustments. The Aussie fell by 0.7% to reach a roughly two-week low of $0.6514, consequently dragging down the New Zealand dollar by 0.6% to $0.6045.
Additionally, the euro and sterling dipped to two-week lows against the dollar, with the euro down 0.2% at $1.0847 and sterling declining by 0.3% to $1.2686. However, the pound gained 0.5% against the yen, trading at 190.74.
In the cryptocurrency market, bitcoin experienced a decline of up to 5.8%, reaching two-week lows following last week's record highs, as some investors engaged in profit-taking. Bitcoin, the largest cryptocurrency by market value, was last down by 4.9% at $64,073.
Paraphrasing text from "Yahoo Finance" all rights reserved by the original author.
