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Yen under pressure, bonds volatile after BOJ holds rates steady
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Yen under pressure, bonds volatile after BOJ holds rates steady
Jul 31, 2026 1:54 AM

* Nikkei pares gains but still closes up 4% on

Microsoft ( MSFT )-inspired chip rally

* BOJ signals readiness to tighten policy further, flags

risk of inflation overshoot

* Yen's retreat comes after surge on Thursday following

currency intervention

(Updates with comments from BOJ news conference in paragraph 9,

refreshes prices)

By Kevin Buckland

TOKYO, July 31 (Reuters) - The yen remained under pressure

while Japanese government bonds turned volatile on Friday after

the Bank of Japan held interest rates steady, as widely

expected, while signalling additional tightening ahead.

The Nikkei share average trimmed gains but still

ended the day 4% higher. Chip-related shares rallied, in line

with gains on Wall Street overnight after Microsoft ( MSFT )

delivered forecasts that eased fears about the industry's

massive AI infrastructure spending.

The yen was 0.5% weaker at 160.33 per U.S. dollar as

of 0755 GMT, roughly where it was before the BOJ's announcement,

which came when most other financial instruments were in the

midday trading recess.

On Thursday, the yen had surged as much as 3.6% from near a

four-decade low after Japanese authorities conducted the first

intervention in three months to prop up the ailing currency.

"If currency intervention was timed to coincide with the BOJ

meeting, it could be interpreted as a message that the

government does not want the BOJ to raise interest rates on the

grounds of yen depreciation," said Kazutaka Maeda, senior

economist at Meiji Yasuda Research Institute.

"That said, intervention only buys time. If the underlying

weak yen trend remains unchanged, discussion will naturally

return to further rate hikes."

The two-year JGB yield, the one most sensitive

to the central bank's policy, pared an earlier 1.5-basis-point

rise to be up just 0.5 bp at 1.5% shortly after the BOJ

announcement, but then rose again to last stand at 1.515%.

Yields move inversely to prices.

The 10-year yield shed a 0.5-bp advance to

eventually fall 1 bp to 2.7685%.

Those late moves came as BOJ Governor Kazuo Ueda said in a

post-meeting news conference that many policy board members see

inflation risks as skewed to the upside, and that the influence

of currency volatility on inflation may be larger than in the

past.

The central bank held the key rate at 1%, having raised it

in June. It signalled its resolve to continue pushing up

borrowing costs, warning for the first time that underlying

inflation could exceed its target.

"I got the impression that the statement was somewhat

hawkish," said Masato Koike, senior economist at Sompo Institute

Plus. "The likelihood of an October hike has increased."

Over the remainder of this year, the BOJ has policy meetings

in September, October and December.

The Nikkei closed 4% higher at 64,362.021, after entering

the midday recess at 64,572.25. The broader Topix rose

1.3% for the day.

Chip-testing equipment manufacturer Advantest ( ADTTF )

soared 16.3% and AI-focused startup investor SoftBank Group

leapt 13.8%.

Overnight, the U.S. S&P 500 gained 1.7% and the

tech-heavy Nasdaq climbed 2.8%. Microsoft ( MSFT ) surged 15.5%

after forecasting quarterly sales and cloud growth above

expectations.

"It confirmed continued strong demand for AI," said Nomura

strategist Maki Sawada. "The U.S. rally is having a big impact

on Japanese shares today."

(Reporting by Kevin Buckland; Editing by Sonia Cheema, Mrigank

Dhaniwala and Subhranshu Sahu)

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