Yen touches 158 to the dollar as market weighs further BOJ tightening pace

On Friday, the Japanese Yen (JPY) failed to gain strength despite the Bank of Japan (BoJ) raising its policy rate to 1.25%, as indicated by a 7-2 vote. This apparent tightening of monetary policy did not elicit the anticipated shift in the JPY's value against the US Dollar (USD). In fact, USD/JPY traded above 157.00, a level that reflected disappointment following expectations of a more substantial rate hike.

The Bank of Japan's move coincides with ongoing guidance to continue raising rates, yet the decision was met with skepticism due to modest Japanese inflation and the presence of two dissenting board members appointed by Prime Minister Takaichi. The BoJ's intention to continue raising the policy interest rate and adjusting the degree of monetary accommodation was reaffirmed, similar to their actions in July.

However, the fact that two dissents were recorded highlighted the government's cautious approach. Despite the expectations of a 'jumbo' hike, USD/JPY remained above the 157 mark, suggesting the central bank's readiness for consecutive rate hikes is still in question. This outcome was further supported by August CPI inflation (excluding fresh food) falling to 1.7%, below market expectations.