Japanese Yen Slides Sharply Against Dollar After Rate Hike to 30-Year High

The Japanese yen fell sharply against the US dollar and other major currencies on Friday, despite the Bank of Japan raising interest rates to their highest level in three decades, as markets reacted to the lack of clear guidance on future tightening.

The yen weakened after the central bank increased its benchmark interest rate to 0.75% from 0.5%, a move widely anticipated by policymakers and investors. Rather than supporting the currency, the decision triggered fresh selling as traders judged the Bank of Japan’s stance to be less hawkish than expected.

Losses deepened following a press conference by Bank of Japan Governor Kazuo Ueda, who stopped short of specifying the timing or pace of any future rate hikes, reinforcing uncertainty over the policy outlook.

The dollar rose as much as 1.2% on the day, hitting a four-week high and heading for its largest daily gain since early October. It was last trading up 1.19% at 157.41 yen, a level that has heightened speculation about potential official intervention.

The yen’s weakness was broad-based. The euro climbed to a record 184.6 yen, the Swiss franc reached an all-time high of 197.23 yen, and the British pound rose as much as 1.22% to 210.58 yen, its strongest level since 2008.

“The standout currency, of course, is the yen,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. “The Bank of Japan raised rates as expected and signaled it would continue if the economy evolves as projected, but the yen is weakening broadly. Many investors feel the central bank simply wasn’t hawkish enough.”

In its policy statement, the Bank of Japan reiterated its expectation that core inflation would converge toward its 2% target during the second half of its three-year forecast period ending in fiscal year 2027. It also stressed that real interest rates remain “significantly low” even after the latest hike, pledging to continue tightening policy if economic and inflation trends unfold as projected.

That reassurance, however, failed to stem the yen’s decline. Traders have increasingly weighed the likelihood of currency intervention since the yen breached the 155-per-dollar level in November.

Japan last intervened in the foreign exchange market in July 2024, when the dollar surged to 161.96 yen, its highest level since the mid-1980s. On Friday, Finance Minister Satsuki Katayama warned that Tokyo stands ready to respond to excessive currency moves.

“We will take appropriate action against excessive volatility, including movements driven by speculation,” she said.

Elsewhere, the euro held steady at $1.1716, after the European Central Bank left interest rates unchanged at 2% and offered no forward guidance. ECB President Christine Lagarde said all options remain on the table, reflecting divisions among member states.

The British pound hovered at $1.3378 after the Bank of England cut interest rates to 3.75%, a move that was widely expected but delivered by a narrower margin than markets had anticipated, potentially limiting further easing.

The Australian dollar rose 0.14% to $0.662, while the New Zealand dollar slipped 0.36% to $0.5753. The dollar edged up 0.04% against the offshore Chinese yuan to 7.035.

In digital assets, bitcoin climbed 2.86% to $88,051, while ether jumped 5.15% to $2,973, extending gains amid renewed investor appetite for risk.

As markets digest Japan’s cautious shift away from ultra-loose monetary policy, analysts warn that without clearer guidance or more aggressive tightening, pressure on the yen is likely to persist, keeping Tokyo on alert for further currency instability.