ECB and BOJ rate decisions drive the yen to a new 15-year low against the euro
In contrast to the European Central Bank’s (ECB) rate hike on Thursday, the Bank of Japan (BOJ) maintained ultra-low interest rates and predicted that inflation will decline later this year, which caused the yen to drop to a fresh 15-year low against the euro on Friday.
The BOJ kept its 0% cap on the yield on 10-year bonds and its target short-term interest rate of -0.1%, as predicted, in accordance with its yield curve control (YCC) policy.
“While it’s true that the rate of fall is a little modest, we expect inflation to moderate. However, the moderation is still in its early stages, according to BOJ Governor Kazuo Ueda.
Following the announcement, the yen dropped significantly, reaching a new 15-year low versus the euro of 154.70, and was expected to have its worst weekly loss against the euro in three years. At 154.43 for the euro, the yen was last down 0.5% for the day.
To 141.02 yen, the Japanese yen decreased by 0.5% against the US dollar.
“While the decision itself was not a major surprise, a few participants… had expected a YCC adjustment, and the financial market reacted with higher stock prices and a weaker yen,” said Hirofumi Suzuki, chief FX strategist at SMBC.
The specific mention of FX by the BOJ, according to strategists at Goldman Sachs (NYSE: GS), “will likely keep concerns of renewed intervention alive.”
After the ECB increased borrowing costs to a 22-year high and signaled future rate hikes, the euro was headed for its best week in seven months.
The dollar dropped significantly because of this and other weak U.S. economic statistics, and traders reduced their expectations on how high U.S. interest rates would need to rise.
After reaching a one-month high against the dollar on Thursday as a result of the ECB’s rate hike and forward guidance, the euro increased by 0.1% to $1.0951.
A rate increase in July is very likely, according to ECB President Christine Lagarde, who also stated that the institution still has “ground to cover” in order to contain excessive inflation.