BOJ Rate Hike Triggers Yen Rout, Sparks US Spillover Concerns

The Bank of Japan (BOJ) raised its key interest rate to 1.25%, marking the highest rate in three decades.

This decision was unexpected, as expectations were that a rate hike would strengthen the yen.

However, the yen has fallen on the news, and the reason for this perverse reaction is believed to be due to division within the BOJ, with a 7-2 vote in favor of the rate hike.

This division may make further rate hikes difficult, and there is a risk that inflation could exceed 2% in Japan, requiring additional rate hikes.

The move in the yen has created policy headaches for the US, as Japan is a large holder of US Treasuries and may need to sell them to intervene in the forex market, potentially increasing yields in the US.