Pound To Yen Rate Hits 15-Year Highs As Bank Of Japan Remains Dovish

The Japanese Yen faced selling pressure following the Bank of Japan’s policy decision and comments from Bank Governor Ueda. Yield spreads weakened the yen as risk conditions boosted demand for carry trades with the yen as the preferred funding currency. The Dollar to Yen exchange rate reached a 34-year high around 156.70, while the Pound to Yen exchange rate also hit 15-year highs above 196.0. The yen saw some recovery after the European market opened as intervention concerns lingered. The Bank of Japan kept monetary policy unchanged, citing balanced risks to the economy and uncertainties in Japan’s economic outlook. Governor Ueda mentioned that monetary policy is not aimed at controlling FX rates directly and that the weak yen is not significantly impacting trend inflation. However, he acknowledged that the yen is starting to affect costs. Analysts believe that the BOJ is unlikely to raise rates in the near future, potentially leading to further yen weakness and a possible intervention by Japanese officials. ING suggests that a weaker yen could prompt intervention, especially if the USD/JPY rate approaches 160. The focus is on the rate of change rather than specific levels, with volatility currently lower than in previous intervention instances in 2022.