The Japanese Yen remained under pressure on Friday after the Bank of Japan (BOJ) left interest rates unchanged, with investors continuing to test Tokyo's commitment to supporting the currency following its coordinated market intervention.
The Dollar regained ground against the Yen, rising 0.81% to 160.760 after tumbling 2.4% in the previous session, its steepest one-day decline since January 2023. As widely expected, the BOJ kept its short-term policy rate at 1%, maintaining the level set after its rate increase in June.
Before the policy announcement, Japanese authorities intervened in the foreign exchange market during the New York trading session, buying Yen and selling Dollars to pull the currency away from its weakest levels in four decades, according to a Reuters source familiar with the matter.
Japan's top currency official on Friday said Tokyo was receiving support from the United States that “goes beyond psychological support.”
Speculative investors have continued to build bearish positions against the Yen, with data from a US regulator showing net short positions had climbed to $11.65 billion, close to their highest level in two years.
In a rare show of coordinated action, South Korea also intervened in the foreign exchange market on Thursday by selling Dollars, according to a Reuters source.
The Won initially surged to its strongest level in nine months before giving back part of its gains, trading at 1,438.1 per Dollar in early Friday dealings, still more than 1% stronger than the previous session.
Furthermore, the BOJ reiterated that it remains prepared to raise interest rates further in line with developments in the economy, inflation and financial markets. It said the timing and pace of any future tightening would depend on its assessment of the baseline economic outlook, associated risks and the impact of the conflict in the Middle East.
The bank’s gradual approach to policy normalisation has been widely cited as a key factor behind the Yen's slide to a 40-year low. Reflecting expectations that further tightening is still to come, most economists surveyed by Reuters forecast the central bank will raise its policy rate to 1.25% by the end of the year.
The BOJ's policy meeting came a day after the US Federal Reserve also left interest rates unchanged, a decision that weighed on the Dollar as investors questioned whether the Fed's new chair was sufficiently committed to bringing inflation under control.
As a result, the greenback remained under pressure. The US Dollar Index, which measures the currency against a basket of six major peers, edged up slightly to 100.12 after falling 0.8% in the previous session. Even so, the index was on track for a weekly decline of 1.3% and a monthly loss of around 1%.
Elsewhere, the Euro slipped 0.08% during Asian trading to $1.1517 after climbing to a six-week high in the previous session. Meanwhile, Sterling was little changed at $1.3460.