Yen slumps 1% against Singdollar, greenback after BOJ hikes rates

[SINGAPORE] The Japanese yen weakened more than 1 per cent against the Singdollar after the Bank of Japan (BOJ) hiked interest rates by 25 basis points on Friday (Sep 18).

The yen also slumped about 1 per cent against the US dollar.

It was trading at 123.4 per Singdollar as at 4.11 pm in Asia, and at 158 per US dollar.

Rates were raised to 1.25 per cent by Japan’s central bank – a new high in 31 years – amid renewed inflation concerns.

This was a widely expected move, though the vote was split 7-2 as board members Toichiro Asada and Ayano Sato dissented. The split vote caused some caution as it did not support expectations for rate hikes immediately ahead.

“The initial yen weakness reflects two dissents and the fact that this was a meeting without an updated outlook report, limiting the BOJ’s ability to reinforce a hawkish message through revised forecasts,” said Masahiko Loo, senior fixed income strategist at State Street Investment Management.

The yen had slipped after the US Federal Reserve hiked rates to 3.75 to 4 per cent earlier this week, and the currency has now fallen further after the BOJ’s rate hike.

Still, Japan’s Nikkei 225 index closed 1.4 per cent higher against this backdrop on Friday, while the Topix ended 0.1 per cent lower.

“The Fed’s hike this week widened the US-Japan rate gap, putting renewed pressure on the yen and increasing pressure on the BOJ to tighten, while renewed energy pressures add to imported inflation risks,” said BlackRock Investment Institute.

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Yen extends declines after Bank of Japan hikes rates with two dissents

Earlier on Jul 31, the US Treasury had stepped in to buy yen in a bid to prop up a currency that was enduring multi-decade lows. This was the first time the US had intervened to help the battered yen since 1998.

This helped the currency strengthen to about 120 to 121 yen against the Singdollar in early August, though it still weakened to about 123 yen soon after.