Yen rises after the unexpected results of the Bank of Japan’s meeting

The Bank of Japan (BOJ) raised a yield cap on 10-year government bonds from 0.25% to 0.5%.

This move was justified by ensuring greater sustainability of the current monetary policy. However, many economists consider it a basis for further exiting the ultra-loose policy that the bank has been maintaining for a decade.

The unexpected results of the central bank’s meeting led to the yen’s strengthening. Its exchange rate against the dollar rose from 133.11 to 137.16. In turn, the yield on 10-year bonds almost doubled, rising from 0.25% to 0.46%.

The Bank of Japan's decision might cause turmoil in global markets. The central bank's commitment to protecting bond yields has played a significant role in keeping borrowing costs low around the world.

Mari Iwashita, chief market economist at Daiwa Securities Co., noted that the bank’s decision was extremely unexpected. Focusing on the Bank of Japan's agreement with the government, many investors lost their guard. In her opinion, the yield cap’s change will have a strong impact on the yen.

Chief Japan economist at UBS Securities Masamichi Adachi outlined that the bank has definitely stepped in the direction of exiting the ultra-loose policy. Therefore, there is a possibility of interest rate hikes in 2023.