The Bank of Japan raised its policy rate on September 18, but the yen weakened against the dollar.
This trend showed that a currency’s value does not necessarily rise immediately simply because interest rates have been increased.
For people planning to exchange yen, it is worth considering not only the rate announcement but also how the market interpreted the next move.
3-line summary
1. The yen weakened even after the Bank of Japan’s rate hike
2. On September 23, it was in the 157-yen-per-dollar range
3. Expectations for additional hikes matter more than the interest rate itself
The Bank of Japan raised rates from 1.00% to 1.25%
On September 18, the Bank of Japan raised its policy rate by 0.25% points, from 1.00% to 1.25%. Junggi Economy reported that this was the highest level in 31 years. It is easy to assume that when interest rates rise, the incentive to hold the relevant currency increases, which can strengthen the currency’s value.
However, this time, the interpretation was that the hike itself did not significantly depart from market expectations. It was also noted that 7 of the 9 policy board members supported the hike and 2 opposed it, and that Kazuo Ueda, governor of the Bank of Japan, did not clearly present the pace of the next hike.
The rate decision was already a known fact, but the market viewed how quickly the Bank of Japan would raise rates going forward as more important. The result of having raised rates and expectations regarding the pace of subsequent hikes do not mean the same thing.
U.S. interest rates and dollar strength also played a role
The fact that the U.S. Federal Reserve showed restrictive signals around the same time was also analyzed as part of the background to the yen’s weakness. Junggi Economy reported that, as U.S. monetary policy carried greater weight, the dollar-yen exchange rate rose to 156.9 yen as of September 18. A rise in the dollar-yen exchange rate means that more yen are needed to buy 1 dollar.
Newsis reported that trading began in the Tokyo foreign exchange market on September 23 at the low 157-yen-per-dollar range. It also reported that there were yen purchases reflecting the possibility of intervention in the foreign exchange market by Japanese authorities and awareness of a rate check, but that no clear direction emerged.
The point to watch in this trend is the fact that the Bank of Japan’s rate hike did not guarantee yen strength. The interest-rate level, the interest-rate gap between the United States and Japan, and market expectations regarding the future pace of policy were all reflected in the exchange rate at once. When comparing currency-exchange costs, it is also better not to look only at the exchange rate at a particular point in time, but to check the actual applied exchange rate and fee terms together.
References
Tags #Yen #YenExchangeRate #BankOfJapan #BOJ #JapanInterestRates #DollarYenExchangeRate #WeakYen #YenWeakness #JapanTravelCurrencyExchange #YenCurrencyExchange #ExchangeRate #ForeignExchangeMarket