BOJ holds at 1% as yen intervention shifts focus to Ueda's tone

Japan's suspected yen-buying intervention and the BOJ's rate decision have converged, putting Governor Kazuo Ueda's forward guidance under intense scrutiny.

The Bank of Japan held its policy rate at 1% on Friday as expected, but Governor Kazuo Ueda's post-meeting press conference carries outsized weight after Japanese authorities intervened to prop up the yen a day earlier, sending the dollar down as much as 3% to 158.34.

"The timing was faster than expected as I saw a good chance of intervention after the BOJ's policy meeting," Toru Suehiro, chief economist at Daiwa Securities, said. "If the U.S., as reported, has conducted rate checks and may be endorsing a weak dollar, that's positive for the Takaichi administration."

The dollar fell by as much as 3% to 158.34 yen on Thursday, its biggest one-day drop since late 2022, after touching 40-year highs near 164 yen earlier this week. Trading volumes surged, with Citi's eTrading desk recording an estimated $8.1 billion in dollar-yen selling across core currency venues between 0930 and 0940 ET. U.S. Treasury Secretary Scott Bessent said the yen "seems very undervalued," according to a Fox Business Network reporter, while the Nikkei newspaper reported U.S. authorities conducted rate checks — precursors for currency intervention. The yen also jumped more than 2% against both the euro and the pound and nearly 2% against the Australian dollar.

The intervention, Japan's first since it spent a record 11.7 trillion yen ($73 billion) in April and May, shows the Takaichi administration's determination to combat a weak yen that has pushed up import costs and strained household purchasing power. Markets now await Ueda's guidance on the pace of future rate hikes, with the BOJ governor caught between a dovish administration wary of further tightening and the need to prevent yen weakness from fueling broader inflation.

The yen's slump to four-decade lows below 163 per dollar earlier this month had kept markets on edge despite repeated warnings from Finance Minister Satsuki Katayama of "decisive" action. Thursday's intervention caught many off guard by arriving before the BOJ meeting rather than after, a departure from the calibrated jawboning that preceded previous bouts of yen-buying. Mizuho Bank senior strategist Masayuki Nakajima noted that previous Japanese currency intervention had been conducted on the day after the Fed meeting.

The vote split on Friday's rate decision has not yet been disclosed. The central bank is expected to deliver hawkish messaging that leaves scope for further hikes, though the pace remains uncertain given political pressure from Prime Minister Sanae Takaichi's administration, which has prioritized fiscal spending over monetary tightening. OIS markets had priced a high probability of a hold, with the focus squarely on Ueda's communication about the future rate path.

The last time Japan intervened in April and May, the brief boost to the yen was quickly wiped out as the currency resumed its downtrend. The question now is whether authorities will keep pushing until the dollar breaks below the 155-yen line, as Yuji Saito, executive advisor at SBI FX Trade, put it. The answer may depend on how hawkish Ueda sounds on Friday — and whether the BOJ's messaging convinces markets that Japan's era of ultra-low rates is truly ending.

This article is for informational purposes only and does not constitute investment advice.