Yen Weakens After BOJ Keeps Rates Steady Amid Intervention Concerns

The Japanese yen weakened on Friday after the Bank of Japan (BOJ) decided to keep its benchmark interest rate at 1% despite concerns over currency intervention. The US dollar rebounded, rising by 0.75% to 160.67 yen after a 2.4% decline in the previous session, which was its biggest one-day drop since January 2023.

The BOJ's decision to leave short-term interest rates unchanged came as investors questioned Tokyo's resolve to defend the yen following intervention by Japanese authorities. A market source told Reuters that Japan bought yen and sold US dollars during the New York trading session on Thursday, helping the currency recover from four-decade lows.

However, analysts say the combination of intervention risks and expectations of additional BOJ tightening could limit further weakness in the yen. State Street Investment Management senior fixed-income strategist Masahiko Loo said that intervention and a potentially faster pace of monetary policy normalisation should place 'a soft cap' on further yen weakness.

Speculators remain heavily bearish on the yen, with net short positions valued at US$11.65 billion, close to the highest level in two years.