Yen Slumps as BOJ Rate Hike Underwhelms Market Expectations

The Japanese yen plummeted to a two-week low against the US dollar after the Bank of Japan's interest rate hike underwhelmed market expectations. Two policymakers at the BOJ dissented from the decision to raise rates, casting doubt on further hikes. The move pushed interest rates to their highest level in 31 years, but traders felt there was a lack of explicitly hawkish guidance.

The US dollar rose 1.2% against the Japanese currency, reaching a two-week high of 157.84 yen. This marked the largest daily increase versus the yen since December and the largest weekly rally since September 2024. 'They've just clearly underwhelmed versus expectations here,' said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

The BOJ's decision was seen as a disappointment by traders, who had bet on multiple rate hikes to boost the yen. The dissent from policymakers Asada and Sato suggests they may increasingly act as a brake on further tightening. Data showed Japan's core inflation held steady near the central bank's target of 2% in August.