The Japanese yen strengthened against a basket of major and minor currencies in Asian trading on Tuesday, putting it on track for its first gain in three sessions against the US dollar after the Bank of Japan raised interest rates to their highest level in 31 years, marking another milestone in the country's monetary policy normalization process.

The decision was approved by a 7-1 vote. Governor Kazuo Ueda did not attend the meeting or participate in the vote as he remains hospitalized for treatment. Deputy Governor Shinichi Uchida is expected to explain the decision and the central banks outlook for the economy and inflation during a press conference later today.

Price action

The US dollar fell about 0.2% against the yen to 160.05, from an opening level of 160.32, after reaching an intraday high of 160.36.

The yen ended Monday's session down 0.1% against the dollar, marking its second consecutive daily loss.

Bank of Japan

In line with broad market expectations, the Bank of Japan raised its benchmark interest rate by 25 basis points on Tuesday to 1.0%, the highest level since 1995, in another significant step toward normalizing monetary policy in the world's fourth-largest economy.

Bank of Japan raises rates to highest level since 1995

The central bank said the decision passed by a 7-1 majority, with board member Toyoichiro Asada opposing the move and calling for rates to remain unchanged at 0.75%.

The meeting was held in the absence of Governor Kazuo Ueda, who is undergoing treatment for hepatitis. Ueda submitted written views but did not participate in the vote, while Deputy Governor Shinichi Uchida chaired the meeting.

In its updated monetary policy statement, the Bank of Japan said that the persistent rise in crude oil prices is increasingly feeding through into corporate goods and services prices, raising the risk that inflationary pressures will spread more broadly to consumers.

The bank added that rising medium- and long-term inflation expectations increase the risk of core inflation moving away from desired levels, requiring close monitoring of price developments and a readiness to implement further monetary tightening if necessary to maintain price stability and achieve its inflation target sustainably.

Interest rate outlook

Following the meeting, market pricing for another 25-basis-point rate increase at the Bank of Japan's July meeting remained below 50%.

Investors are now awaiting additional data on inflation, wages, and unemployment to reassess the likelihood of further policy tightening.

Focus on Shinichi Uchida

Deputy Governor Shinichi Uchida is scheduled to speak later today regarding the outcome of the policy meeting. Markets will closely watch his remarks for fresh guidance on the future pace of policy normalization and the possibility of another interest rate increase later this year.