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Yen Slides After BOJ Rate Hike as Dollar Holds Near Seven-Week High

Yen Slides After BOJ Rate Hike as Dollar Holds Near Seven-Week High. Source: Image by Squirrel_photos from Pixabay

Asian currencies traded mixed on Friday, with the Japanese yen weakening despite a Bank of Japan interest rate hike, while a hawkish Federal Reserve outlook kept the U.S. dollar supported near a seven-week high.

The U.S. Dollar Index was largely unchanged at 100.23 as investors assessed the outlook for global interest rates following key policy decisions from the BOJ and Fed.

The yen came under pressure after the BOJ raised its policy rate by 25 basis points to 1.25%, the highest level in 31 years. USD/JPY climbed about 0.7% toward 157 following the 7-2 decision.

Although the rate increase was widely anticipated, two BOJ policymakers voted to leave rates unchanged. The dissent gave the decision a more dovish tone and reduced expectations that Japan's central bank could accelerate monetary tightening.

Investors were awaiting comments from BOJ Governor Kazuo Ueda for further signals about the timing and pace of future rate hikes.

Japan's inflation data also provided limited support for additional tightening. Core consumer prices, excluding fresh food, increased 1.7% year-on-year in August, slightly below economists' forecast of 1.8% and unchanged from July. Inflation excluding fresh food and fuel rose 1.9%.

Meanwhile, the U.S. dollar remained supported after the Federal Reserve raised its benchmark rate by 25 basis points on Wednesday to a range of 3.75%-4.00%. Updated Fed projections indicated another rate increase could come this year. Fed funds futures showed markets pricing a 53% probability of another quarter-point hike at the next meeting.

Elsewhere in Asian currency markets, the Australian dollar gained 0.3% against the greenback. USD/CNY slipped 0.2%, indicating a modest strengthening in the Chinese yuan, while USD/KRW advanced 0.4% as the South Korean won weakened.

The Singapore dollar and Indian rupee were largely unchanged. Higher U.S. Treasury yields and elevated energy prices also remained key factors shaping currency market sentiment as traders weighed the outlook for global monetary policy.

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