The Japanese Yen fell on Tuesday following the Bank of Japan’s (BOJ) move to end its negative interest rate policy.
In a momentous departure from decades of extensive monetary stimulus, the central bank concluded a two-day monetary policy meeting by terminating eight years of negative interest rates and other unconventional policy measures.
However, the Yen declined 0.8% to surpass the 150-mark to the Dollar after the bank’s decision, as the majority of investors had already priced in a shift.
At the time of writing the Japanese currency was trading at 150.39 to the Dollar, whilst against the Euro, the Yen fell over 0.7% to 163.425, a three-week low, Reuters news agency reports.
“It's a classic 'buy the rumour, sell the fact.' I don't think the BOJ was going for the shock-and-awe approach this time,” stated Bart Wakabayashi, Tokyo branch manager at State Street.
Following Japan's first rate hike in 17 years, the central bank announced that it would manage the overnight call rate, its new policy rate, within a range of zero to 0.1%. Additionally, it stated its anticipation for "accommodative financial conditions" to persist in the foreseeable future
This will likely keep pressure on the Yen due to the significant interest rate differentials between Japan and the United States.
“The market has taken it as a green light to increase the short Yen positioning that was already in place, given the forward guidance from the BOJ was fairly cautious, and not really enough to draw further hawkish repricing in the Japanese rate market,” according to MUFG currency strategist, Lee Hardman.
In addition, the Federal Reserve is widely forecast to hold rates steady on Wednesday.
“Anytime the Fed and the BOJ are moving policy settings at about the same time, it's always the Fed that rules and dominates the price action, even in Dollar/Yen,” said Macquarie's FX and rates strategist, Gareth Berry
“So the BOJ's decisions generally are, as far as the Yen is concerned, a matter of secondary importance,” he added.
The Dollar index, measuring the greenback against six peers, was up 0.32% on Tuesday at 103.92, around a two-week top.