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The Yen appreciated against the U.S. dollar after the Bank of Japan left its benchmark interest rate unchanged at 0.50 %. The decision came with a 7-2 split among board members, reflecting differing views on the pace of policy tightening. Alongside keeping rates steady, the central bank confirmed it will gradually sell its exchange-traded fund (ETF) and Japanese real estate investment trust (J-REIT) holdings, marking a cautious step toward normalisation of policy. With inflation slowing but still above target and a leadership change underway in Japan's ruling party, investors are now focused on the BOJ's October meeting as a possible turning point for rate action.
The Japanese yen gained ground against the U.S. dollar after the Bank of Japan decided to keep its policy rate unchanged at 0.50 %. The decision was taken with a 7-2 vote, where two board members dissented. At the same time, the BOJ announced that it will begin unwinding part of its balance sheet by selling holdings of exchange-traded funds and Japanese real estate investment trusts. Advertisement
The central bank outlined its plan to reduce ETFs by around Yen 330 billion each year and J-REITs by about Yen 5 billion annually. This step comes as part of a gradual move to normalise monetary policy after years of heavy stimulus. The BOJ had earlier increased its benchmark rate to 0.50 %, ending a prolonged phase of ultra-low rates.
Fresh data released the same day showed that Japan's core consumer prices rose 2.7 % year-on-year, the slowest pace in nine months, though inflation remains above the bank's 2 % target. Analysts said the slower inflation print, combined with the decision to begin asset sales, adds complexity to the BOJ's next moves.
Market observers described the outcome as somewhat unexpected, noting that it may indicate the central bank could raise rates sooner than anticipated. The BOJ's upcoming policy meeting in October is now seen as a possible point for a rate hike, depending on economic indicators and political developments.
Political factors are also influencing expectations. Japan's Liberal Democratic Party is currently holding a leadership election to decide the successor to outgoing Prime Minister Shigeru Ishiba. Market analysts noted that the leadership race is likely to limit how much BOJ Governor Kazuo Ueda signals about future policy until political uncertainty eases.
Beyond Japan, global markets remain focused on the U.S. outlook. The Federal Reserve cut rates earlier in the week, and futures data now suggest a high probability of another 25-basis-point cut at its October meeting. Meanwhile, demand for U.S. Treasuries continues to rise, with overseas holdings reaching record highs, supported by Japan and the United Kingdom.
Currency markets reflected these developments. The euro edged lower against the dollar, sterling slipped after the Bank of England held rates and slowed its bond reduction programme, while the New Zealand dollar fell further after disappointing second-quarter GDP data. The Australian dollar and the offshore yuan also weakened slightly during the session.
Source - Reuters
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