Yen Exchange Rate: BOJ’s Policy Update Impacts Yen

The recent decision by the Bank of Japan (BOJ) to maintain ultra-low rates but slightly adjust its bond yield control policy has sent ripples through the currency markets, notably affecting the yen exchange rate. The unexpected move disappointed speculators anticipating more decisive actions from the central bank amidst persistent price pressures. In this article, we will delve into the recent developments and their impact on the yen exchange rate, particularly regarding yen to the dollar, euro to yen, and pound to yen conversions.

BOJ Decision and Yen’s Response

After their two-day meeting, the BOJ confirmed their dedication to maintaining the 10-year bond yield of around 0.00% via YCC. However, a significant change emerged as the bank redefined 1.00% as a loose “upper bound,” abandoning the prior rigid cap. Furthermore, removing a pledge to defend the level with offers to buy unlimited bonds left markets in flux. Consequently, the yen depreciated by nearly 0.70% against the dollar, slipping past the 150 per dollar threshold and hitting an intraday low of 150.12 before recovering slightly to 149.95. Similarly, the euro surged approximately 0.50% against the yen, settling at 158.87 yen. This decision, as indicated by Jeff Ng, head of Asia macro strategy at SMBC, reflects a gradual move by the BOJ towards YCC removal, enhancing flexibility amid globally elevated yields.

Yen Exchange Rate: Implications and Future Outlook

Markets had anticipated more substantial measures or potential guidance, potentially leading to a ‘buy the rumour, sell the fact’ scenario. The yen strengthened following a Nikkei report hinting at the BOJ potentially permitting 10-year JGB yields to exceed 1.00%. This series of manoeuvres by the central bank points towards recalibrating its strategy in response to persistently high global yields. Therefore, there are potential changes in the yen’s exchange rate against major currencies like the euro, pound, and dollar.

In conclusion, the recent adjustments in the BOJ’s bond yield control policy have triggered fluctuations in the yen exchange rate. Following the bank’s decision, the yen weakened against the dollar and euro, potentially signalling future shifts in currency conversion rates.