The yen is defying the logic that a rise in interest rates should support a currency.
Instead, the yen has dropped to a two-week low against the dollar today. It’s down over 1% today to ¥157.90.
Traders are selling the yen after noting that two policy makers at the Bank of Japan declined to support today’s interest rate rise. That could limit the prospect of the BoJ raising interest rates faster.
Kathleen Brooks, research director at XTB, says BoJ governor Ueda has not sounded as hawkish as expected today:
Ueda has confused the market today with both hawkish and dovish signals, he has said that Japan is entering a new policy-making stage, but has also warned against rapid rate hikes that trigger asset price volatility. This highlights the BOJ’s dilemma, on the one hand they need to raise rates to stabilize inflation, but Japan has a huge government debt load and they cannot upset the bond market for fear of triggering global financial market instability.
Anyone looking for Japanese funds and individuals to embark on mass capital repatriation on the back of this rate hike have been proved wrong, the yen is weaker today and Japanese bond yields are lower across the curve.
