Mar 19 2024: SINGAPORE (Reuters) – Japan’s yen experienced a significant decline on Tuesday following the Bank of Japan’s (BOJ) decision to end its negative interest rate policy, a move that had been widely anticipated. Additionally, the Australian dollar also fell after the Reserve Bank of Australia (RBA) kept rates unchanged.
In a historic shift away from years of extensive monetary stimulus, the BOJ concluded its two-day monetary policy meeting by ending eight years of negative interest rates and other unconventional policies.
Despite this monumental decision, the yen depreciated by 0.8% and fell below the 150 level against the dollar, a move largely expected by investors.
The yen was last seen at 150.39 against the dollar and slid more than 0.7% against the euro to touch 163.425, its lowest level in three weeks.
“It’s a classic case of ‘Buy the rumor, sell the fact.’ I don’t think the BOJ was aiming for a shock-and-awe approach this time,” commented Bart Wakabayashi, Tokyo branch manager at State Street (NYSE:STT).
With Japan’s first interest rate hike in 17 years, the central bank announced that it would guide the overnight call rate – its new policy rate – in a range of zero to 0.1%, expecting “accommodative financial conditions” to persist for the time being.
This development is likely to keep downward pressure on the yen, given the significant interest rate differentials between Japan and the United States.
Meanwhile, the Australian dollar declined after the RBA decided to keep rates steady, as anticipated, but adjusted its tightening bias.
The Aussie dollar dropped by 0.7% to reach a two-week low of $0.6515, pulling the New Zealand dollar down as well, with the kiwi falling by more than 0.5% to $0.6050.
“We see the RBA as having softened its tightening bias, although not completely abandoning it,” noted Adam Boyton, head of Australian economics at ANZ.
In other currency movements, a stronger dollar pushed the euro and pound to two-week lows, with the euro reaching $1.08625 and the pound declining by about 0.2% to $1.2703.
The dollar’s rebound comes in response to resilient U.S. economic data indicating persistent inflation, prompting investors to adjust their expectations for Federal Reserve rate cuts this year.
These developments precede Wednesday’s Fed policy decision, which will be closely watched for signals on the timing of potential rate adjustments.
“We expect the FOMC to maintain a baseline of three rate cuts for 2024 at its March meeting and have revised our forecast to three cuts compared to four previously in 2024,” stated Goldman Sachs chief U.S. economist David Mericle in a note.
Against a basket of currencies, the dollar reached a two-week high of 103.82.
