USD/JPY: BOJ ends negative rates era, yen weakens

Yen slips, Nikkei gains as BOJ ends negative rates. BOJ's future policy path eyed.

USD/JPY: BOJ ends negative rates era, yen weakens
BOJ Raises Rates

The Japanese yen (USD/JPY) weakened against the US dollar after the Bank of Japan (BOJ) finally ditched its eight-year policy of negative interest rates. In a move that had been widely anticipated by markets, the BOJ raised its benchmark rate from -0.1% to 0.1%, marking the first tightening since 2007.

This historic shift signals a potential turning point for Japan's monetary policy. The ultra-low rates, aimed at stimulating a sluggish economy, had long drawn criticism for distorting financial markets. The BOJ's decision indicates a growing confidence in the domestic economy's ability to weather higher borrowing costs.

However, the immediate impact on the yen was a depreciation. The currency, sensitive to changes in interest rate differentials, dipped past the key psychological barrier of 150 yen per dollar.

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Analysts believe the yen's future trajectory will depend on a confluence of factors, including the BOJ's future tightening path and the Federal Reserve's policy decisions. A series of hikes by the BOJ could see the yen regain some ground, while a cautious, wait-and-see approach might lead to further depreciation. Additionally, the relative pace of monetary tightening between the US and Japan will be a key determinant of the yen's attractiveness. If the Fed continues its aggressive tightening cycle, it could put further downward pressure on the yen.

Despite the currency's wobble, Japan's stock market managed to close higher on Tuesday. Investors appeared to welcome the BOJ's move as a sign of a gradual return to normalcy in monetary policy, even if the long-term implications for the yen remain uncertain.

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