Yen Falls to Two-Week Low as BOJ Rate Hike Fails to Convince Traders

The yen weakened to a two-week low against the dollar on Friday after the Bank of Japan raised interest rates to 1.25% — their highest in 31 years — but failed to persuade traders that further increases are coming soon.

The central bank's decision was not unanimous. Two policymakers dissented from the move, a split that market participants read as a sign of internal resistance to the fastest pace of tightening in more than three decades.

The dollar climbed 1.2% against the Japanese currency to 157.84 yen, putting it on course for its largest single-day gain since December and its biggest weekly advance since September 2024. The yen had wavered during Governor Kazuo Ueda's press conference before the dollar's rise gathered pace.

Analysts said the outcome fell short of expectations. One strategist described the vote as a surprise that "raised eyebrows," while another noted that the statement contained little additional hawkish guidance to support bullish positions on the yen. The dissent, according to ING's Frantisek Taborsky, suggests the two policymakers may increasingly act as a brake on further tightening.

Traders were also watching for possible intervention. Finance Minister Satsuki Katayama said Tokyo would not hesitate to take further coordinated action, following a joint US-Japan move to boost the yen in late July. The currency had rallied sharply in early September to its highest since February on bets of multiple rate hikes, but those wagers came under question on Friday.

Data released the same day showed Japan's core inflation held steady near the central bank's 2% target in August.

Elsewhere, currency markets were relatively calm. The dollar index was up less than 0.1% at 100.31 but had gained 1.2% for the week, touching a six-week high after the Federal Reserve raised rates on Wednesday and signalled more increases could follow. Traders now see a roughly 55% chance of a quarter-point hike at the Fed's next meeting, up from 27% a week earlier.

The euro was 0.1% firmer at $1.149 but was set to end the week 1% lower. The British pound was 0.1% stronger at $1.337 after retail sales data beat expectations; the Bank of England held rates on Thursday while hinting it could raise borrowing costs.

Oil prices fell to their lowest in about a week on signs of easing supply pressures in Saudi Arabia. China has asked Tehran to help rein in the Iran-aligned Houthis after their military blitz on Saudi Arabia over the past week, according to three Iranian sources familiar with the matter.