Market News

(Bloomberg) -- The yen erased most of its losses against the dollar after comments from Bank of Japan Governor Kazuo Ueda left the door open for further interest rate hikes, without offering clear hints on the timing.

Japan’s currency gained as much as 0.1% to 149.14, after briefly touching 150.02, its lowest in two weeks, during a choppy trading session in Asia on Wednesday after the BOJ kept monetary policy unchanged.

The yen also appeared to benefit from haven demand late in the Asian session as a slump in Turkish assets rippled through global markets.

The currency initially weakened when Ueda started speaking, but quickly pulled back. Economists surveyed by Bloomberg News had expected the BOJ to hold pat this time, putting the focus on whether Ueda came across as hawkish or dovish.

The BOJ in its policy statement added a reference to the evolving situation regarding trade and other policies in its list of risks to the outlook. Ueda said the picture for overseas uncertainties may become clearer by early April.

“The yen reacted to the statement made by Ueda that trade policy issues could be digested to some extent by the April meeting,” said Yukio Ishizuki, a senior currency strategist at Daiwa Securities Co. “However, this will not cause the yen to be bought back more and more.”

Ueda said that Japan’s real interest rate is very low, and that the central bank will raise its benchmark rate if the economic outlook is realized. He also noted that the trend for consumer prices continues to rise, but it’s still below the central bank’s 2% target. The BOJ has hiked rates three times since it ended the world’s last negative interest rate a year ago.

“I sensed that Governor Ueda wanted to raise the rate if there hadn’t been the trade issue,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “Judging from his comments, he’s a little more leaned toward a hawkish stance. I see the next BOJ hike in July but there’s now a higher chance that it will happen earlier.”

The yen has shown some signs of strength since the start of 2025, in stark contrast to four straight years of losses, but growing uncertainties about the global economy and domestic politics may potentially impact the timing of the BOJ’s next move.

Speculation of more rate increases has brought Japan’s government bond yields to their highest levels in almost two decades, as investors anticipate that the yield gap between the US and Japan will narrow further.

Japan’s 10-year sovereign bond yields climbed Wednesday to 1.515%. Ueda also said that now isn’t the time for the BOJ to step into the bond market.

The swaps market is pricing in a 76% chance of a hike by the July BOJ meeting and certainty by the gathering at the end of October.

The focus later Wednesday turns to the Federal Reserve’s rate decision in the US. The Fed is widely expected to hold rates steady and the market will be paying most attention to how the central bank revises its forecasts and the so-called dot plot.

“Powell may sound more hawkish due to higher inflation risks stemming from tariffs, so dollar-yen could go higher beyond 150 in the near term,” said Sera.

--With assistance from Saburo Funabiki and Masaki Kondo.