Japanese Yen Slips as BOJ Holds Interest Rates Steady at 0.5%

The Japanese yen weakened on Thursday after the Bank of Japan (BOJ) decided to keep its benchmark interest rate unchanged at 0.5%, wrapping up a two-day policy meeting. 

The central bank reiterated its commitment to gradually raising borrowing costs only if the economy continues to evolve in line with its projections.

Investors interpreted the decision as another sign of the BOJ’s cautious approach to tightening policy. Only two policy board members supported a rate hike, mirroring the split seen in September, underscoring the bank’s reluctance to move too aggressively amid fragile economic conditions.

Following the announcement, the yen fell to ¥152.83 per U.S. dollar, hovering near its weakest level in eight months. The euro climbed 0.3% to ¥177.70, while the British pound rose 0.2% to ¥201.78.

The BOJ maintained its view of a “moderate economic recovery,” noting resilience in domestic demand but cautioning about lingering cost pressures and global trade tensions.

The yen’s decline coincided with renewed optimism surrounding a potential trade breakthrough between U.S. President Donald Trump and Chinese President Xi Jinping. 

Markets are eyeing a possible deal to cut U.S. tariffs on Chinese imports to 47% in exchange for Beijing’s resumption of American soybean purchases, continued exports of rare earth minerals, and tighter crackdowns on illicit fentanyl trade.

While the news buoyed investor sentiment, analysts warned that any trade truce between the world’s two largest economies could prove fragile, given their deep-rooted strategic rivalry.

Elsewhere, the U.S. dollar eased slightly from earlier highs but remained close to a two-week peak at 99.01 against a basket of major currencies. The euro strengthened to $1.1625, and the British pound rose to $1.3219.

The moves came after Federal Reserve Chair Jerome Powell indicated growing divisions within the Fed over the path of monetary policy. With the ongoing U.S. government shutdown delaying key economic data releases, policymakers may opt to delay another rate cut.

Market odds of a December rate reduction dropped to around 68%, down sharply from near certainty before Powell’s remarks.

Meanwhile, the Australian dollar gained to $0.6591, and the New Zealand dollar edged higher to $0.5782, reflecting broader risk-on sentiment amid hopes of easing U.S.–China trade tensions.

Yen banknote as the new note is displayed at a currency museum of the Bank of Japan, on the day the new notes of 10,000 yen, 5,000 yen and 1,000 yen went into circulation, in Tokyo, Japan July 3, 2024. REUTERS/Issei Kato/Pool