Yen weakens despite BOJ rate hike, then strengthens by more than ¥1 overnight: Was a rate check conducted in preparation for intervention? (TV Asahi NEWS)

On the 18th, the Bank of Japan decided at its Monetary Policy Meeting to raise the policy rate from its current level of around 1% to around 1.25%, bringing it to its highest level in 31 years, since 1995. Governor Ueda (植田) said that he recognized that “the situation has changed” and indicated a policy of conducting monetary policy appropriately going forward.

Immediately after the announcement, the yen weakened in the foreign exchange market amid expectations of a BOJ rate hike. The dollar-yen exchange rate was reported to have moved toward a stronger yen, from the ¥157 range per dollar to the ¥156 range, with the stance of responding to the inflation outlook and upside risks cited as the backdrop.

The BOJ reaffirmed its policy of targeting inflation of around 2%. With concerns about rising prices driven by factors including higher oil prices resulting from the situation in the Middle East, the need to accelerate monetary tightening in preparation for the risk of inflation exceeding the target was highlighted. In response, megabanks raised ordinary deposit rates from 0.4% to 0.5%, while short-term prime lending rates for mortgages were also raised by 0.25%.

Market attention is focusing on the timing of the next rate hike. Governor Ueda (植田) said that “the pace of the next rate hike is not being determined with any particular indicator in mind,” and the yen continued to fluctuate. Uncertainty remains over the outlook for future monetary policy, including comparisons with rate hikes by the Federal Reserve.

At one point overnight, the dollar-yen exchange rate moved by more than ¥1 toward a stronger yen, prompting speculation that the government and the BOJ had conducted a rate check, viewed as a preparatory step for foreign exchange intervention.