(Bloomberg) -- The yen weakened past yet another milestone after the Bank of Japan kept interest rates steady, sliding 1% and breaching 156 versus the dollar. Japanese stocks ended the day slightly lower while government bond futures rose.
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The currency traded at 156.35 against the greenback around 4:16 p.m. in Tokyo as Governor Kazuo Ueda spoke in his post-decision press conference. Japanese government bond futures fluctuated during the day and were up 30 ticks. The decline in the yen Thursday followed a 0.9% drop on Wednesday after the Federal Reserve cut interest rates while signaling caution over future rate reductions.
The breach of 156 is significant, taking the yen into a zone that’s closely watched by currency strategists. They see a slide like this having the potential to trigger for verbal intervention from Japanese authorities, and adding pressure on the BOJ to hike rates sooner rather than later.
“The Fed’s hawkish tilt and BOJ’s pause could bring fresh reasons for yen traders to ‘carry’ on,” said Charu Chanana, chief investment strategist at Saxo Markets.
The decision was largely priced in by overnight index swaps prior to the meeting and predicted by the majority of economists in a Bloomberg survey. Rate hike bets had receded in recent weeks, contributing to a six-day losing streak in the yen through Monday, its longest stretch of declines versus the dollar since June.
BOJ officials saw little cost in waiting before raising interest rates, Bloomberg reported earlier this month, citing people familiar with the matter.
What Bloomberg’s Markets Live Says...
“The yen’s fate is out of the hands of the Bank of Japan, for now. The currency faces more of 2024’s weakness and whiplash — a multi-decade low of 160/USD and a one-year high — until policymakers deliver a bolder signal that policy normalization will resume.”
Mary Nicola, Markets Live strategist at Bloomberg.
Click here to read the full report.
Of note to traders, the BOJ said that the currency is more likely to affect prices than before. And board member Naoki Tamura voted against the stand-pat decision, proposing a rate hike to 0.5% at this gathering.
“There’s some hawkish vibes in the decision — particularly one dissenter in favor of a hike and more signs of wage-price spiral intensifying,” said Chanana. “But it remains unlikely that Ueda can clearly signal a January rate hike given the uncertainties around Fed and Trump presidency.”
Currency strategists have pointed to the risk of further vulnerability for the yen ahead if the BOJ decides to keep interest rates unchanged until March or later.