BoJ Holds Rate at 1%, Yen Continues Plunge Amid Carry Trade Concerns
The Bank of Japan (BoJ) has decided to hold its benchmark rate at 1%, a move that was widely expected by markets. The decision comes as the yen continues to plummet, hitting a fresh 40-year low against the US dollar.
Although the rate remains historically high since 1995, it still leaves an interest rate differential of around 250-275 basis points against the Federal Reserve's target range. This gap funds one of the most durable trades in global markets: borrowing yen cheaply and converting to dollars to invest in higher-yielding US assets.
The 'yen carry trade' has not been disrupted despite Japan's Ministry of Finance spending a record ¥11.7349 trillion (approximately $71.7 billion USD) on direct foreign exchange intervention operations between April 28 and May 27 this year.
Market attention now shifts to the language used by BoJ Governor Kazuo Ueda in his post-meeting press conference, scheduled for July 31. The tone of his words will be crucial in determining the direction of the yen and the carry trade.