BOJ Holds Rates Steady but Ueda's Hawkish Tone Sends Yen Tumbling

The Bank of Japan (BOJ) held its policy interest rates steady on July 31, but Governor Kazuo Ueda's comments after the decision sent a hawkish signal that pushed the yen below ¥159 per US dollar.

In his post-decision press conference, Ueda highlighted the growing concern over currency-driven inflation, stating that its impact 'may be becoming bigger than in the past.' He also indicated that the risk of inflation overshooting the BOJ's 2% target is now greater than the risk of falling short.

Ueda did not directly address the yen's valuation or provide specific guidance on future rate moves. However, board member Hajime Takata dissented from the hold decision, advocating for an immediate rate hike to 1.25%, a move that signals genuine internal pressure to tighten policy more aggressively.

The BOJ's hawkish stance has significant implications for the global markets, particularly the yen carry trade, where investors borrow cheaply in yen to fund positions in higher-yielding assets. A genuine BOJ hawkish surprise in late July 2024 contributed to a brief but violent selloff across global risk assets, including crypto, as the yen carry trade unwound and leveraged positions got liquidated.