Yen Slides as Bank of Japan Pours Cold Water on Rate-Hike Bets

Mia Glass, Masahiro Hidaka and Naomi Tajitsu

Thu, May 1, 2025, 7:28 AM 3 min read

(Bloomberg) -- The yen fell sharply against the dollar after the Bank of Japan said it will take longer than it previously thought to hit the inflation target, leading traders to pare bets on further interest-rate hikes.

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Japan’s currency fell as much as 1.2% to 144.74 per dollar, leading losses among Group-of-10 peers. The move started after the central bank announced its decision to hold rates steady, and extended as Governor Kazuo Ueda said US tariffs clouded the economic outlook. The decline later pared to 1%.

The BOJ said in its outlook report it expects inflation to be consistent with its 2% goal around the second half of its outlook period, which was extended by a year to include fiscal 2027. The bank halved its economic growth projection to 0.5% for this fiscal year in a sign of heightened caution following the US levies and countermeasures by others.

The message was seen as dovish and led traders to trim wagers on further monetary tightening. Overnight index swaps now show only about a 34% chance of a rate hike by the end of the year compared with certainty in early April. Benchmark 10-year government bond futures held on to advances after rising as much as 69 ticks to 141.34.

“The BOJ’s outlook report was more dovish than expected,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “This likely signals the intention to wait for a clearer picture of the impact of US tariffs before resuming rate hikes.”

Ueda said that the BOJ continues to maintain a stance toward raising interest rates as its price goal is within sight. He also said that the delay in the price target timing doesn’t mean that there will be a delay in hikes. The BOJ voted unanimously to maintain the central bank’s policy rate at 0.5%, as expected by all 54 economists surveyed by Bloomberg.

Still, for Yusuke Miyairi, a foreign-exchange strategist at Nomura, the BOJ’s shift from focusing on domestic issues to highlight the impact of trade tariffs backs up a dovish policy stance.

“Ueda has tried to balance his comments by saying that the BOJ can hike even though Japan’s inflation hasn’t reached 2% yet, but he’s less confident than he was in March,” Miyairi said in an interview with Bloomberg TV.