BOJ Rate Hike Fails to Stem Yen's Slide Amid Hawkish Divergence

The Bank of Japan raised interest rates for the second time in three months on Friday, but the yen continued to slide as investors questioned Tokyo's commitment to tighter policy.

The BOJ's decision was widely anticipated and broke its recent pattern of adjusting rates only twice a year. However, two board members dissented, favoring no change, indicating that the central bank remains divided over how quickly to unwind years of ultra-loose monetary settings.

Markets are pricing nearly three additional rate increases from the Federal Reserve by the middle of next year, with comparable trajectories anticipated for the European Central Bank and the Bank of England. In contrast, traders see only about two more hikes in Japan over the same horizon, which has kept pressure on the yen.

The currency tumbled as much as 1% overnight to around 156.42 per dollar, erasing a recovery that had built earlier in the month. The question now is whether Governor Kazuo Ueda can articulate a sufficiently hawkish message at his press conference following the decision to prevent the yen from sliding toward the 160 level.