Yen slumps as BOJ keeps policy ultra-loose, dollar set for 10th weekly rise

LONDON/SINGAPORE  – The yen fell sharply on Friday after the Bank of Japan (BOJ) kept interest rates in negative territory just days after the Federal Reserve signaled U.S. borrowing costs would stay high, piling pressure on the Japanese currency and raising the risk of intervention.

Meanwhile, the U.S. dollar index was on track for its 10th consecutive weekly increase in the wake of the Fed decision and as the euro fell after weak economic data from France.

The BOJ held interest rates at -0.1 percent on Friday and reiterated its pledge to keep supporting the economy until it’s confident inflation will stay at the 2 percent target.

“We have yet to foresee inflation stably and sustainably achieve our price target,” BOJ Governor Kazuo Ueda said in a press conference.

“That’s why we must patiently maintain ultra-loose monetary policy. Having said that, we will of course shift policy if achievement of our target is foreseen.”

The yen dropped as low as 148.42 to the dollar, nearing the 150-mark at which analysts have said government intervention to prop up the currency is likely. The dollar was last up 0.48 percent at 148.28 yen.

“I think it’s rather dovish, and that’s why we’ve seen the yen go past 148,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

Speculation that Tokyo could intervene to support the yen gathered steam. Japan’s Finance Minister Shunichi Suzuki said on Friday he would not rule out any options, warning against a yen sell-off that would hurt the trade-reliant economy.

RBC’s Tan said: “The Ministry of Finance is making increasingly explicit verbal intervention warnings, so in that sense I think we are inching towards intervention levels.

“On the other hand, the volatility (in dollar-yen) is very low… so that’s kind of a negative for intervention, because they always talk about intervention as tackling volatility.”

The dollar index, which tracks the currency against six major peers, rose 0.16 percent to 105.55 on Friday. It was on track to eke out a weekly increase of around 0.2 percent , its 10th rise in as many weeks.

Driving the move was a 0.19 percent fall in the euro to $1.0642 after survey data showed that economic activity in France fell much more quickly than expected in September.

The Federal Reserve left interest rates at 5.25 percent to 5.5 percent on Wednesday but stressed that it would hold them at that level for as long as needed to push inflation back to 2 percent .

The Fed’s tough words have pushed yields on 10-year U.S. Treasuries to their highest level since 2007 at more than 4.47 percent . That boosts the greenback by making dollar-denominated U.S. bonds look more attractive.

“We like the U.S. dollar given this backdrop,” said Ray Sharma-Ong, investment director of multi-asset solutions at abrdn.

“The U.S. dollar will do well, supported by the hawkishness of the Fed, the reduction in the expected number of rate cuts the Fed will deliver in 2024, U.S. growth resiliency and our expectations of slower growth in the euro area relative to the U.S.”

Sterling was 0.24 percent lower at $1.2266. It slipped to a roughly six-month low of $1.22305 on Thursday when the Bank of England (BoE) halted its long run of interest rate increases, a day after Britain’s fast pace of price growth unexpectedly slowed.

The Australian dollar was up 0.25 percent at $0.6433.