The Japanese yen weakened past 153 per dollar on Wednesday, reaching a one-week low after Bank of Japan (BOJ) Governor Kazuo Ueda provided no clear guidance on the future trajectory of interest rates.
Japanese yen dips amid no clear guidance from BoJ
In a parliamentary session, when asked about the exit from Japan’s massive stimulus program, Ueda reiterated that the central bank would maintain its monetary policy with the goal of achieving a sustainable 2% inflation rate, reinforcing expectations that any rate hikes will be gradual and cautious.
In contrast, BOJ board member Naoki Tamura suggested last week that the central bank may need to raise the policy rate to at least 1% in the latter half of fiscal 2025. His remarks fueled speculation about a potential shift in Japan’s ultra-loose monetary policy, but Ueda’s more measured stance tempered those expectations, leading to renewed weakness in the yen.
External factors
Externally, the yen faced additional pressure from a stronger U.S. dollar, which surged following hotter-than-expected U.S. inflation data. The robust U.S. Consumer Price Index (CPI) report has reinforced expectations that the Federal Reserve will keep interest rates elevated for longer, widening the yield gap between U.S. and Japanese government bonds and further diminishing the yen’s appeal.
Additionally, global trade tensions added to downward pressure on the currency. U.S. President Donald Trump’s escalating tariffs, particularly those targeting key Asian exporters, have raised concerns about potential disruptions in global supply chains. Analysts warn that these trade policies could drive up inflation in the U.S., making it harder for the Federal Reserve to lower interest rates and reinforcing dollar strength.
Japan’s economic data remains mixed
Meanwhile, Japan’s economic data remains mixed, with subdued wage growth and household spending offsetting improvements in business sentiment. Investors are closely monitoring upcoming economic indicators, including inflation and GDP figures, for further clues on the BOJ’s policy direction. In the near term, the yen remains vulnerable to external factors, including U.S. monetary policy developments and geopolitical risks.
