The yen fluctuated between gains and losses on Wednesday after the Bank of Japan raised interest rates at the conclusion of its two-day monetary policy meeting and unveiled a detailed plan to reduce its massive bond-buying program. The yen rose to its highest level in more than three months at 150.58 yen to the dollar immediately after the Bank of Japan announced the interest rate hike.
The Bank of Japan said that its board of directors decided to raise the overnight loan interest rate target to 0.25% from 0-0.1% and approved a quantitative tightening plan that would nearly halve monthly bond purchases to 3 trillion yen ($19.63 billion) from 6 trillion yen currently, starting from January to March 2026. Various news reports had earlier indicated the possibility of an interest rate hike by the Bank of Japan on Wednesday, which prepared the market for such a move.
Wednesday is expected to be a busy day as investors will also receive inflation figures from France and the Eurozone later in the day, along with the monetary policy decision from the U.S. Federal Reserve, which takes center stage.
An official survey of manufacturing in China also showed that industrial activity contracted in July for the third consecutive month, which maintained expectations that Beijing would need to make further efforts to support its fragile economic recovery. In contrast, the yuan rose by 0.2% in recent trading to 7.2374 against the dollar.
The dollar index also fell by 0.04% to 104.39 and is heading for a monthly loss of about 1.4%. Markets expect the U.S. Federal Reserve in its meeting on Wednesday to pave the way for the first interest rate cut in September.
