BoJ Rate Hike Fails to Boost JPY as USD Soars

The Japanese Yen has weakened against the US Dollar despite the Bank of Japan's (BoJ) decision to raise interest rates by 25 basis points. The BoJ raised its policy rate from 1% to 1.25%, its highest level in 31 years, with a seven-to-two vote in favor of the increase.

BoJ Governor Kazuo Ueda emphasized that the central bank will continue to raise interest rates if economic developments and prices warrant further tightening. However, the BoJ highlighted several sources of uncertainty, including tensions in the Middle East, artificial intelligence-related demand, and volatility in foreign exchange markets.

The latest inflation data has tempered expectations regarding future rate hikes, with Japan's National Consumer Price Index (CPI) remaining unchanged in August, while underlying inflation stood below the BoJ's 2% annual target. This limited expectations of more aggressive tightening and weighed on the Japanese Yen.

Meanwhile, the US Dollar benefits from a hawkish repricing of the US monetary policy outlook following the Federal Reserve's (Fed) decision to raise its benchmark interest rate by 25 bps to a range of 3.75%-4%. The Fed's move has led markets to see about a 55% chance of another 25 bps increase at the October meeting, up from about 40% before the Fed meeting.