The Bank of Japan raised its policy rate from around 1.0% to 1.25%, bringing it to its highest level in approximately 31 years. The yen is expected to remain on a weakening trend, while long-term interest rates are also expected to stay elevated. Expectations of further rate hikes by the US FRB are also affecting the yen exchange rate.
At its monetary policy meeting on 18 September, the Bank of Japan decided to raise its policy rate from around 1.0% to around 1.25%. This is expected to bring the policy rate to its highest level in approximately 31 years. While the move is intended to curb rising prices, views were expressed that the effects of soaring crude oil prices and yen depreciation will persist.
The yen temporarily strengthened to the ¥152 range as expectations of a BOJ rate hike grew, but the structural trend of yen selling remains unchanged and the yen is beginning to weaken again. Long-term interest rates are trading in the 2.9% range, and the outlook is for both yen weakness and elevated long-term rates to persist.
The US FRB raised interest rates on the 16th, ahead of the BOJ. The fact that the Japan-US interest rate gap is not narrowing is supporting the yen's weakening trend and is among the factors affecting the yen exchange rate.
Daisaku Ueno (植野大作), chief foreign exchange strategist, said that “the structure in which the yen is sold and the yen weakens remains unchanged.” Regarding the outlook, he said, “If the FRB raises rates further, it will become more difficult for the yen to turn higher.”