BOJ, ECB rate decisions send yen to fresh 15-year low against euro
THE yen fell to a new 15-year low against the euro on Friday (Jun 16) after the Bank of Japan (BOJ) kept ultra-low interest rates and forecast that inflation will slow later this year in contrast with the European Central Bank’s (ECB) rate hike on Thursday.
As widely expected, the BOJ maintained its -0.1 per cent short-term interest rate target and a 0 per cent cap on the 10-year bond yield set under its yield curve control (YCC) policy.
“We expect inflation to moderate, but it’s true the pace of decline is somewhat slow. But we’re still in the early stages of the moderation,” BOJ governor Kazuo Ueda said.
The yen fell broadly following the decision and hit a fresh 15-year low of 154.70 per euro and was set for the biggest weekly decline against the single currency in three years. The yen was last down 0.5 per cent on the day at 154.43 per euro.
The Japanese currency fell 0.5 per cent against the US dollar to 141.02 yen.
“While the decision itself was not a major surprise, a few participants ... had expected a YCC adjustment, and the financial market reacted with higher stock prices and a weaker yen,” said Hirofumi Suzuki, chief FX strategist at SMBC.
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Goldman Sachs strategists said the BOJ’s explicit reference to FX “will likely keep concerns of renewed intervention alive”.
Elsewhere, the euro was poised for its best week in seven months after the ECB raised borrowing costs to a 22-year high and hinted at further rate hikes.
That and some soft US economic data saw the US dollar fall broadly as traders scaled back their bets on how high US interest rates would need to rise.
The euro edged 0.1 per cent higher to US$1.0951 after touching a one-month high against the US dollar, having surged over 1 per cent on Thursday following the rate hike and forward guidance from the ECB.
ECB president Christine Lagarde told a news conference that another rate hike in July was highly likely and that the central bank still has “ground to cover” to stave off high inflation.
Sterling edged 0.1 per cent higher at US$1.2793 after rising to its highest level since April 2022 as traders similarly ramped up bets that the Bank of England is likely to raise interest rates for the 13th meeting in a row next week.
Fed faces grim data
The ECB’s monetary policy decision came a day after the US Federal Reserve left interest rates unchanged, snapping a string of 10 consecutive rate hikes. However, the Fed also signalled that borrowing costs may still need to rise by as much as half of a percentage point by the end of this year.
But a string of data on Thursday had markets challenging that view as economic activity in the US slows and inflation cools.
Production at US factories almost stalled in May as manufacturing struggled under the weight of higher interest rates, while US import prices similarly fell last month.
A separate report from the Labor Department showed initial claims for state unemployment benefits were unchanged at a seasonally adjusted 262,0000 for the week ended Jun 10, above economists’ forecast for 249,000 claims.
US retail sales unexpectedly rose in May, however, as consumers stepped up purchases of motor vehicles and building materials.
Against a basket of currencies, the US dollar index edged up 0.03 per cent to 102.17, after slipping to a one-month low on Thursday.
“Investors retain a fair bit more conviction about the (hawkish) policy outlook in Europe relative to the US and that should buoy euro sentiment for now,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto. REUTERS
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