Yen Weakens Despite BOJ Rate Hike, Dollar Holds Gains Amid Hawkish Fed Outlook

Asian currencies were mixed on Friday as the yen weakened despite the Bank of Japan raising interest rates to a 31-year high. The yen's pair against the US dollar rose 0.7% to near 157 yen after the BOJ raised its policy rate by 25 basis points to 1.25%. This move was widely expected, but two policymakers dissented in favor of keeping rates unchanged, tempering expectations for further tightening and giving the decision a dovish tone.

Capital Economics analysts said that with the two most hawkish Board members set to depart next July, 'the composition of the Board will probably become even more dovish.' Markets were awaiting Governor Kazuo Ueda's press conference for clues on the timing and pace of further rate increases. The data showed that Japan's August core consumer prices rose 1.7% from a year earlier, below the 1.8% increase expected by economists.

The dollar remained underpinned by expectations that the Federal Reserve could raise rates again next month. Fed funds futures were pricing a 53% probability of a quarter-point increase at the next meeting, according to CME Group's FedWatch tool. The greenback held gains amid a hawkish US Federal Reserve outlook.