Japanese Yen weakens as Bank of Japan holds rates at 1%

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USD/JPY rises after two days of losses, trading around 160.80 during the Asian hours on Friday. The currency pair continues to appreciate as the Japanese Yen (JPY) weakens following the Bank of Japan’s (BoJ) decision to keep its short-term interest rate unchanged at 1.00%.

The Bank of Japan kept interest rates steady at 1.00% in an 8-1 vote, meeting market expectations.
Japanese authorities warned they remain ready to intervene in foreign exchange markets to support the Yen.
Easing Middle East tensions and diplomatic progress could soften safe-haven demand for the US Dollar.

The outcome of the two-day monetary policy review meeting, which matched market expectations, passed in an 8-1 vote. Board member Hajime Takata was the sole dissenter, advocating for another rate hike as policymakers weighed potential upside inflation risks driven by Middle East conflict-related demand pressures.

Meanwhile, Japanese Finance Minister Satsuki Katayama reiterated that financial authorities remain prepared to step into the foreign exchange market at any moment, emphasizing ongoing coordination with the United States regarding currency moves.

Strategists at Scotiabank highlight a notable shift in official rhetoric, observing that recent commentary from Japan’s Ministry of Finance has moved away from explicit FX defence. They note that “comments from the MoF have shifted from intervention-related threats to growth-oriented tax cuts,” underscoring a policy tone that appears more focused on supporting domestic activity than on directly jawboning the Yen.

The USD/JPY pair could soon face headwinds as safe-haven demand for the US Dollar (USD) cools alongside easing geopolitical tensions. Global risk sentiment has improved following positive diplomatic breakthroughs, including advancing talks between the US and Iran to secure stability in the Strait of Hormuz. Additionally, US President Donald Trump announced a historic deal directing the disarmament of Hamas and the withdrawal of Israeli forces from Gaza, a milestone confirmed by senior Hamas officials that has further alleviated market anxiety.

Economic Indicator

BoJ Interest Rate Decision

The Bank of Japan (BoJ) announces its interest rate decision after each of the Bank’s eight scheduled annual meetings. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and raises interest rates it is bullish for the Japanese Yen (JPY). Likewise, if the BoJ has a dovish view on the Japanese economy and keeps interest rates unchanged, or cuts them, it is usually bearish for JPY.