The Japanese yen fell to approximately 157.70 per US dollar on September 22, marking a 0.22% decline and a third consecutive day of losses. This trend persists despite the Bank of Japan raising its policy rate by 25 basis points to 1.25% on September 18, the highest level in 31 years.
The decision to raise rates passed with a 7-2 vote, revealing a lack of consensus within the board regarding aggressive tightening. Governor Kazuo Ueda described the move as the beginning of a new phase aimed at controlling inflation, while leaving the possibility of further hikes open.
Market participants currently estimate a 30% probability that the Bank of Japan will increase rates to 1.5% during the October meeting. The persistent yield differential of about 275 basis points between the US and Japan continues to incentivize carry trades, where investors borrow yen to invest in higher-yielding currencies.
Following the rate hike, there are reports that the central bank conducted a rate check, a procedure often used as a precursor to direct market intervention. This action serves as a signal to dealers regarding exchange rates as the yen remains under pressure.
