Why Did the Yen Weaken Despite the Bank of Japan's Rate Hike? Understanding Current Market Conditions Through the FOMC, Higher Oil Prices and 5% US Rates

This week, the US Federal Reserve raised its policy rate by 0.25% to 3.75% to 4.00%. The Bank of Japan followed with a 0.25% rate hike the next day. While the impact of the interest-rate differential was priced into markets, the yen temporarily fell into the ¥158 range. Crude oil prices surged above $100 amid supply concerns in the Middle East, but retreated in the latter half of the week as alternative shipping arrangements progressed and diplomatic developments emerged. The yield on 10-year US Treasuries rose toward 5%, spreading the impact of high interest rates across equity markets.

The Fed's rate hike and higher oil prices were reflected in monetary policy, with concerns about inflation caused by higher oil prices and the high-interest-rate environment affecting markets as factors pushing up long-term interest rates. Meanwhile, supply-related risks remain even after the decline in oil prices, and persistently high interest rates are expected to be a key factor in the market's future direction. There were also periods in which the fact that the Bank of Japan's rate hike had already been priced in, as well as expectations of additional Fed rate hikes, affected markets.

Equity markets did not suffer a major decline, and buying returned at times, particularly in technology stocks. While resource-related stocks showed relative strength, rising fuel and raw-material costs created headwinds for other sectors, and European stocks were weaker than US stocks. Gold moved between geopolitical risks and inflation concerns, fluctuating in line with interest rates and the strength of the dollar. Overall, it remains unclear whether the oil shock is being viewed uniformly as the start of a severe economic downturn, as markets continue to assess the effects of interest rates on the economy and stock prices.