Bank of Japan freezes interest rates despite record low yen… Yen-dollar exchange rate exceeds 156 yen

The yen-versus-dollar exchange rate exceeded 156 yen just one day after breaking through 155 yen, which was considered a psychological support line. On the 26th, the yen-dollar exchange rate in the Tokyo foreign exchange market was 156.13 yen during the day, breaking again the highest level in 34 years (yen weakness). The yen-to-dollar exchange rate has steadily risen from the 140 yen level at the beginning of this year, and has recently been breaking the record every day since June 1990.

On this day, the Bank of Japan, the central bank of Japan, held a financial policy decision meeting and announced that it would freeze the base interest rate at 0-0.1% per year. The Bank of Japan raised its base interest rate from -0.1% last month, ending its 17-year negative interest rate policy. However, at this meeting, which was held for the first time since then, there was no further interest rate increase. The Nippon Keizai Shimbun analyzed, “The Bank of Japan decided that it was necessary to further check trends in price and wage increases.” Market experts believe there will be a further interest rate increase around October.

Bloomberg News said, “It appears that the yen has fallen further because the Bank of Japan has not made any statement in response to the weakening yen.” The fact that the Bank of Japan maintained its government bond purchases at the previous level on this day, collapsing the market’s expectations of ‘quantitative tightening’, is also considered to be a cause of the yen’s weakness.

Market attention is focused on whether Japan’s foreign exchange authorities actually intervene in the exchange rate. Japanese Finance Minister Shunichi Suzuki emphasized his intention to intervene in the market, saying, “We will definitely respond.” Regarding this, U.S. Treasury Secretary Janet Yellen expressed a negative stance. In an interview with Reuters on the 25th, Secretary Yellen said, “Authority intervention should only occur in very unusual situations where the market volatility is so high that abnormalities appear, and it should be discussed (with us) in advance.”