Yen Tumbles as BOJ Rate Hike Expectations Recede

The Japanese yen weakened to its lowest level in years against the US dollar, falling 0.5% to 158.21 per dollar on October 1. The decline was driven by decreasing expectations of an interest rate hike by the Bank of Japan (BOJ) later this month.

According to swaps market data, the probability of a rate increase on October 30 had risen above 30% earlier in the week but fell below 20% on October 1. In contrast, an additional rate hike by December has been fully priced in.

Takuya Kanda, chief foreign-exchange analyst at Gaitame.com Research Institute, noted that while the BOJ's summary of opinions from its September monetary policy meeting included many hawkish views, it was not enough to reinforce expectations for consecutive rate hikes.

The decline in rate hike expectations has weighed on the yen, which is already under pressure due to the Federal Reserve's hawkish stance. The gap between US and Japanese monetary-policy outlooks is adding pressure on the Japanese currency.