Yen Drops to Two-Week Low After BOJ Rate Hike Fails to Impress

The Japanese yen slumped to a two-week low against the US dollar after the Bank of Japan (BOJ) raised interest rates, but failed to boost the currency as expected. The BOJ pushed rates to their highest level in 31 years at 1.25%, yet traders felt there was a lack of explicitly hawkish guidance.

Ray Attrill, head of FX strategy at National Australia Bank in Sydney, said 'They've just clearly underwhelmed versus expectations here.' He added that the fact that two policymakers dissented from the decision raised eyebrows in the market.

The US dollar rose 1.2% against the Japanese currency to a two-week high of 157.84 yen after wavering during BOJ governor Kazuo Ueda's press conference. Traders remained alert to the risk of intervention to prop up the currency after Finance Minister Satsuki Katayama said Tokyo won't hesitate to conduct further coordinated action.

Frantisek Taborsky, currency strategist at ING, noted that 'The statement offered little additional hawkish guidance to support bullish Japanese yen positions.' He added that the dissent from policymakers Toichiro Asada and Ayano Sato points to resistance against the fastest pace of rate increases in more than three decades.