Yen Gains on Hawkish BOJ Hold

The Japanese yen strengthened to around 159 per dollar on Tuesday before trimming gains, after the Bank of Japan kept its policy rate unchanged at 0.75% for a fourth straight meeting, in line with expectations. The central bank also raised its inflation outlook while lowering its FY2026 growth projections to reflect the economic impact of the Middle East conflict. Notably, three of the nine policy board members backed a rate hike, highlighting rising concern over inflationary pressures linked to the Iran war. BOJ Governor Kazuo Ueda also reaffirmed the bank’s commitment to a gradual tightening path, signaling that interest rates could continue to rise as economic, price, and financial conditions evolve. Separately, Finance Minister Satsuki Katayama reiterated that authorities remain ready to intervene in currency markets at any time to support the yen.

The Japanese yen strengthened to around 159 per dollar on Tuesday, recouping recent losses after the Bank of Japan kept its policy rate unchanged at 0.75% for a fourth straight meeting, in line with expectations. The central bank also raised its inflation outlook while trimming its growth forecast for FY2026, citing the economic impact of the Middle East conflict, which is expected to weigh on corporate earnings and pressure household real incomes. BOJ Governor Kazuo Ueda remains under scrutiny to reinforce expectations of a gradual normalization path that could provide support for the yen, which has come under pressure from surging oil prices. Further currency weakness could heighten the likelihood of policy tightening if imported inflation accelerates through exchange-rate pass-through effects. Finance Minister Satsuki Katayama also reiterated that authorities stand ready to intervene in currency markets at any time.

The Japanese yen traded around 159.5 per dollar on Tuesday, moving sideways through the week as investors adopted a cautious stance ahead of the Bank of Japan’s upcoming policy decision. The central bank is broadly expected to keep its benchmark rate unchanged as policymakers weigh heightened inflation risks against weaker growth prospects linked to the Middle East conflict. However, market participants are increasingly speculating that BOJ Governor Kazuo Ueda may hint at a gradual return to policy normalization in the months ahead. Investors also continued to monitor developments in the Middle East after Iran submitted a new proposal to the US, though disagreements over Tehran’s nuclear program remain a key sticking point. Meanwhile, Finance Minister Satsuki Katayama reiterated that authorities remain prepared to intervene around the clock to support the yen, adding that Japan and the US will deepen coordination on currency-related issues going forward.