Key facts
- The Federal Reserve raised its benchmark policy rate by 0.25% on Wednesday.
- The yen fell to as low as 156.42 per dollar after the Fed's monetary policy decision.
- The Fed's policy rate projections suggest additional hikes before year-end.
- Fed Chair Warsh signaled a strong commitment to curbing inflation.
- The yen stood at 156.27–37 per dollar as of 5 p.m. Thursday, down 1.22 yen from the previous day.
- The Bank of Japan is scheduled to hold its monetary policy meeting this Friday.
Asian currencies broadly weakened against the dollar on Thursday morning, with the Japanese yen slipping into the 156-range following a 0.25% rate hike by the U.S. Federal Reserve. The Fed's hawkish tone in its future policy outlook reinforced market expectations for continued rate increases, widening the interest rate differential between the U.S. and Japan.
The yen fell against the dollar in New York trading on the 16th, weakening to as low as 156.42 per dollar shortly after the Federal Reserve announced its monetary policy decision. The move of more than 1 yen renewed focus on the widening interest rate differential. As of 5 p.m. Thursday, the yen stood at 156.27–37 per dollar, a decline of 1.22 yen from the previous day. The euro traded at $1.1458–68 and ¥179.24–34.
With the Bank of Japan's monetary policy meeting approaching this weekend, some market participants anticipate further upside in the dollar-yen pair. Nick Twidale, chief market analyst at AT Global Markets, noted that the Fed's rate hike confirmed the recent pullback in dollar-yen had been somewhat overdone and indicated that further correction is likely. Twidale said the Fed's hawkish signals could push dollar-yen toward the 158.40 level. He also noted that lingering market skepticism toward Chair Warsh, who was appointed by President Trump, had persisted until now.
The focus now shifts to the Bank of Japan's response. Twidale stated that the change in yield differentials depends on how hawkish the BOJ is on Friday. While a hawkish BOJ stance could trigger yen buying, he noted that the market has already priced in a substantial degree of hawkish expectations. Dollar-yen was trading roughly flat around 156.23 after rising 0.8% in the previous session. The yen's weakness highlights the divergence in monetary policy stances, with the Fed continuing to raise rates while the Bank of Japan has maintained accommodative policy.