Yen Stays Under Pressure After BOJ Decision as Dollar Slides on Geopolitical Jitters

The Japanese yen remained rangebound on Friday after the Bank of Japan kept interest rates unchanged, a move widely anticipated by markets, while the U.S. dollar headed for its steepest weekly decline in a year amid heightened geopolitical uncertainty and abrupt policy shifts involving Greenland. The yen traded slightly weaker around 158.70 per dollar following the BOJ’s decision, even as the central bank raised its economic growth and inflation forecasts, reinforcing expectations that further rate hikes remain possible.

Despite last month’s rate increase to the highest level in three decades, the yen has struggled to find support. Market participants remain wary that Japan’s monetary policy stance is still too accommodative compared with global peers. Concerns are also growing that a move beyond the psychologically important 160 level against the dollar could trigger currency market intervention from Tokyo, as authorities seek to stabilize the yen.

Attention is now firmly on BOJ Governor Kazuo Ueda’s press conference, where investors are looking for signals on the timing of the next interest rate hike and whether policymakers are adopting a more hawkish tone. Analysts at major financial institutions suggest that the BOJ board is increasingly open to additional tightening, particularly as inflation remains above the central bank’s 2% target despite a recent slowdown in core consumer prices.

The yen’s weakness has been compounded by domestic fiscal concerns. Since Prime Minister Sanae Takaichi took office in October, the currency has fallen more than 4%, pressured by fears of rising government debt after she called a snap election and pledged tax cuts. This uncertainty has spilled into the bond market, where Japanese government bond yields surged to record highs, reflecting investor anxiety over fiscal sustainability and policy direction.

Meanwhile, the U.S. dollar has come under heavy selling pressure. The dollar index slid toward 98.3, on track for a 1% weekly loss, its worst performance since early 2025. Investor sentiment has been rattled by President Donald Trump’s statements regarding Greenland, including threats and subsequent reversals that have raised questions about U.S. foreign policy consistency and its impact on global alliances.

Other major currencies benefited from dollar weakness, with the euro holding near a three-week high and sterling hovering close to recent peaks. Analysts warn that while short-term geopolitical deals may ease immediate risks, lingering uncertainty could undermine confidence in the dollar’s long-term reserve currency status, keeping volatility elevated across global currency markets.