Yen Edges Higher After BOJ Decision

The Japanese yen strengthened toward 160 per dollar on Tuesday, recovering from the prior session’s decline after the Bank of Japan delivered a widely anticipated 25 basis point rate hike to 1%. The move highlighted policymakers’ intent to address inflation risks linked to the Iran conflict and support a persistently weak currency. However, some board members opposed the increase, with Toichiro Asada arguing that downside risks to output and employment outweigh upside risks to inflation. The yen has remained under sustained pressure in recent weeks as traders expanded short positions amid heavy carry trade activity, borrowing in the low-yielding currency to fund higher-yielding assets elsewhere. This dynamic reflects the still-wide interest rate gap between Japan and the US, which has largely offset the BOJ’s gradual tightening path and repeated intervention efforts by authorities in Tokyo.

The Japanese yen strengthened toward 160 per dollar on Tuesday, recovering from the previous session’s losses as investors awaited the Bank of Japan’s policy decision. The central bank is widely expected to raise its benchmark interest rate by 25 basis points to 1% in an effort to contain inflation and support the currency. The yen had faced sustained selling pressure in recent weeks as traders increased short positions amid persistent carry trades, borrowing in the low-yielding Japanese currency to invest in higher-yielding alternatives. The trend has reflected the wide interest rate differential between Japan and the US, which has largely offset the BOJ’s gradual policy tightening and repeated currency intervention efforts by Tokyo. Investors also continued to monitor geopolitical developments amid expectations that the US and Iran will sign a peace agreement in Switzerland on Friday, a move that could lead to the reopening of the Strait of Hormuz.

The Japanese yen depreciated past 160 per dollar on Monday, reversing gains from earlier in the session as traders piled on short bets against the currency amid persistent carry trades, where investors are borrowing against the low-yielding yen and investing in other currencies. The move reflects the continued interest rate gap between Japan and the US, which has outweighed efforts by the Bank of Japan to gradually tighten policy and repeated currency intervention by Tokyo. Still, the Bank of Japan is widely expected to raise interest rates this week in an effort to contain inflation and stabilize the currency. Meanwhile, the yen found some support after the US and Iran reached a peace agreement to reopen the Strait of Hormuz. Oil prices subsequently fell to a two-month low, easing inflation pressures and reducing import costs for energy-dependent economies such as Japan.