The Japanese yen rose in the Asian market on Tuesday against a basket of major and minor currencies, recording its highest level in a week against the U.S. dollar. This followed the announcement of the Bank of Japans (BoJ) monetary policy meeting results, which were more hawkish than markets had anticipated.

The Japanese central bank kept interest rates unchanged for the third consecutive meeting. However, it warned of escalating inflationary pressures due to the repercussions of the Iranian war and high energy prices.

The vote to hold rates steady passed with a 6-to-3 majority, as three members called for a 25-basis-point hike to the 1.0% range. This split bolstered expectations for a normalization of monetary policy in the upcoming June meeting.

Price Overview

- Japanese Yen Exchange Rate Today: The dollar fell against the yen by approximately 0.3% to (158.98), a one-week low, from an opening price of (159.41), after recording a high of (159.57).

- The yen ended Monday's trading down 0.1% against the dollar, marking its fifth loss in the last six days, as difficulties in peace negotiations between the U.S. and Iran weighed on sentiment.

Bank of Japan

In line with most global market expectations, the Bank of Japan on Tuesday kept its benchmark interest rate unchanged at 0.75%, its highest level since 1995, for the third consecutive meeting.

The decision was reached by a 6-to-3 vote. Members Nakagawa, Takata, and Tamura proposed raising the short-term interest rate target from 0.75% to 1.0%, reflecting the bank's concern over inflationary pressures stemming from the Middle East conflict.

The bank warned that Japan's economic growth is likely to slow, as high crude oil prices resulting from the Middle East crisis are expected to squeeze corporate profits and real household income. The bank noted that wages and prices could face upward pressure due to the fallout of the Iranian war.

The BoJ lowered its growth forecast for fiscal year 2026 to 0.5% from 1% and sharply raised its core inflation forecast to 2.8% from 1.9%.

Japanese Interest Rates

- Following the meeting, the market probability of a 25-basis-point rate hike by the Bank of Japan at the June meeting rose from 45% to 75%.

- To further refine these probabilities, investors are awaiting more data on inflation, unemployment, and wage levels in Japan.

Kazuo Ueda

Bank of Japan Governor Kazuo Ueda is scheduled to speak shortly regarding the results of the monetary policy meeting. His comments are expected to provide stronger evidence concerning the future of monetary policy normalization and the potential for rate hikes throughout the year.