Yen Falls as Traders Bet Japan's Rate Hike Won't Match Global Trend

The Japanese yen fell to its lowest level in months against the US dollar as traders bet that Japan's central bank will struggle to keep up with the rising interest rates of other global banks.

The Bank of Japan hiked interest rates on Friday, but two policymakers voted against the decision, which some saw as a dovish signal. In contrast, the Federal Reserve and most other major central banks have been sounding hawkish and are expected to raise rates further this year.

Central bank economists and experts agree that unless Japan tightens policy more quickly than the US, the large interest rate differential between the two countries will continue to support yen-funded carry trades. This could push the dollar/yen exchange rate up to 160 by the end of the year, according to Carlos Casanova, senior Asia economist at Union Bancaire Privée.

The Reserve Bank of Australia and New Zealand are also expected to raise rates in response to high energy prices, which have increased inflationary pressures. The Australian dollar and kiwi currency both rose slightly as a result.