BOJ Keeps Rates Steady, Yen Remains Under Pressure Amid Market Intervention

The yen remained under pressure after the Bank of Japan's decision to keep interest rates steady at 1%, despite expectations of a hike. The move was widely expected, but the BOJ warned that underlying inflation could exceed its target, signaling further rate hikes in the future.

Ahead of the rate decision, Japan conducted yen-buying market intervention overnight, which pulled the currency away from four-decade lows but failed to give it a sustained boost. The dollar last traded 0.75% stronger at 160.670 yen, after a 2.4% fall in the previous session.

The BOJ's decision was seen as a rare coordinated move, with South Korea also conducting dollar-selling intervention on Thursday to support its currency. Japan's top foreign exchange diplomat stated that Tokyo was receiving 'support from the U.S. that goes beyond psychological support', following reports of rate checks by U.S. authorities.

The BOJ highlighted inflationary pressures from robust global AI demand and said concern over the Middle East conflict was receding, underscoring its focus on inflation risks that could warrant higher rates. The language in its latest quarterly outlook report was stronger than that used in April, and investors now await BOJ Governor Kazuo Ueda's press conference for more cues.