USD/JPY: Yen slumps to multi-year lows after 'dovish hike' by BOJ

Carry trade play remains alive as yen weakens past key levels.

USD/JPY: Yen slumps to multi-year lows after 'dovish hike' by BOJ
Yen Under Pressure

The Japanese yen plunged to a four-month trough against the U.S. dollar (USD/JPY) and a 16-year low versus the euro (EUR/JPY) on Wednesday, as traders absorbed the Bank of Japan's (BOJ) move to end negative interest rates while maintaining an accommodative stance.

By 06:45 GMT, the yen had weakened to 151.56 per dollar, breaching the 151 level that could revive intervention talks by Japanese authorities. Against the euro, the yen crumbled past 164.00 – its lowest since 2008 – while versus the pound (GBP/JPY), it slid above 192.00 for the first time since 2015.

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In a historic policy shift on Tuesday, the BOJ scrapped its remaining negative interest rate tool but signalled it would keep conditions loose "for the time being." This dovish undertone cemented expectations that the yen carry trade, where investors borrow cheaply in yen to fund higher-yielding bets, is far from over.

While the BOJ delivered Japan's first rate hike in 17 years, the stark divergence from aggressive Federal Reserve tightening exacerbated yen selling pressure. The carry trade allure remains robust against major currencies, spelling further yen weakness – especially if other central banks delay rate cuts.

Japan's markets are closed on Wednesday for a holiday.

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