The yen extended gains against the dollar after the Bank of Japan kept interest rates unchanged as expected and confirmed underlying inflation has reached 2% for the first time. The currency rose as much as 0.4% to 157.12 per dollar following an 8-1 vote by board members, matching all 53 economists’ expectations in a Bloomberg survey. The decision came amid a global shift into haven assets as tech stocks dropped and oil prices climbed.
The yen has shown signs of returning to its traditional safe-haven role after years of wide interest-rate differentials and large overseas investment flows dampening demand during market stress. Moh Siong Sim of Oversea-Chinese Banking Corp. said the inflation target achievement signals further tightening ahead and should support the yen. However, risks of renewed US-Iran escalation have lifted oil prices, potentially limiting the yen’s gains.
Goldman Sachs Group Inc. strategists noted the yen is becoming a more effective hedge against AI-driven market shocks as Japan’s policy backdrop reduces the risk of sharp weakening when global yields rise. The yen briefly hit 156.08, its strongest level in over a month, last week amid a global tech selloff. Longer-term Japanese government bonds have outperformed as domestic demand recovers and policy support grows, with the 30-year JGB yield falling 40 basis points from a peak of 4.25%.
Nikkei futures fell in Osaka after the BOJ announced it will accelerate ETF sales to about ¥860 billion annually starting January, up from ¥330 billion. Japanese equities joined global declines over AI spending and valuation concerns. Shogo Karitani of Minato Bank called the ETF sales hawkish, prompting modest yen buying.
Corporate funding costs in Japan have risen amid deteriorating global credit markets, with spreads widening across the board. Traders now focus on BOJ Governor Kazuo Ueda’s post-decision press conference, scheduled for 3:30 p.m. in Tokyo.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing