The Bank of Japan’s (BOJ) subtle shift in its monetary policy stance on Tuesday led to a weakening of the yen as investors had anticipated a more decisive move. The central bank, after a two-day policy meeting, chose to keep the 10-year government bond yield near 0%, redefining the 1.0% level as a “loose upper bound” rather than a strict cap and removed its pledge to buy an unlimited amount of bonds to defend the level.

This measured approach, widely perceived as a de-facto alteration of the BOJ’s controversial yield curve control (YCC) regime, failed to satisfy the expectations of some market participants. Consequently, the yen dipped by 0.9% to 150.37, inching closer to the one-year low of 150.78 established just last week. In stark contrast, the euro soared to a 15-year high against the Japanese currency, marking a 1.2% increase to 160 yen.

Explaining the implications of this adjustment, Christopher Wong, a currency strategist at OCBC, said, “The 1% is no longer a strict cap, meaning they will allow for JGB yields to rise above 1%. To some extent, this is as good as quietly allowing YCC to fade into the background.”

Furthermore, Japan’s government officially confirmed on Tuesday that it refrained from intervening in the currency market to support the yen in the past month, based on data from the Ministry of Finance. Data covering the period from September 28 to October 27 revealed no government spending on intervention.

Earlier this month, the Japanese currency experienced a significant rebound, appreciating by roughly 3 yen in mere minutes, once it softened beyond the 150 to the dollar threshold. This level was perceived by investors as a potential trigger for currency market intervention.

The BOJ’s cautious adjustment and the subsequent weakening of the yen have raised concerns about elevated energy costs and other expenses for households grappling with stagnant wages.