Yen Slides Past 159 as BOJ Holds Rates; Markets Pivot to April Hike Prospects

TOKYO — The Japanese Yen (JPY) extended its losses against the US Dollar on Friday, breaching the 159.00 handle, after the Bank of Japan (BOJ) voted to maintain its key policy rate at 0.75%. The decision, while widely anticipated, disappointed traders hoping for a stronger hawkish signal from Governor Kazuo Ueda to combat recent currency weakness.

Ueda Signals “Flexible” Path Amidst Political Pressures

In a unanimous decision, the central bank kept borrowing costs at their 30-year high but revised its medium-to-long-term inflation forecasts upward. Governor Ueda, in the post-meeting press conference, struck a delicate balance, affirming that the bank would “continue to raise interest rates” if the economy evolves as projected. However, he emphasized that the timing remains data-dependent, specifically pointing to April as a key window for assessing wage-price dynamics.

“We will not hesitate to conduct flexible bond operations if long-term yields become unstable,” Ueda noted, acknowledging the rapid rise in yields driven by fiscal year-end factors. Despite the upward revision in inflation outlooks, the lack of immediate action left the yen vulnerable to renewed carry-trade selling.

Economic Green Shoots: PMI Beats Expectations

Complicating the policy picture, fresh data released Friday showed Japans economy starting the year on solid footing. The flash au Jibun Bank Japan Composite PMI rose to 52.8 in January, a 17-month high. Notably, the manufacturing sector returned to growth for the first time in seven months, driven by a resurgence in export orders.

Strategists at Nomura and Mitsubishi UFJ Morgan Stanley Securities argue that while the BOJ stood pat today, the strong data and rising underlying inflation suggest a hike in April is increasingly likely.

Market Reaction

• USD/JPY: Rallied above 159.00, the highest level since mid-January.
• JGB Yields: Remained volatile, with the BOJ pledging intervention if necessary.
• Outlook: Investors are now looking toward the Federal Reserve for the next catalyst. Until the US rate path clarifies, the divergence between the Fed‘s “higher-for-longer” stance and the BOJ’s gradualism is likely to keep the yen under pressure.