The Japanese yen was up 3.42% against the US dollar on Tuesday after the Bank of Japan surprised the world by deciding to let its benchmark interest rate fall from 0.25% to 0.5%. Japan’s central bank has been one of the only banks in the world not to raise benchmark interest rates, as policymakers have kept interest rates close to zero since 2016.
Japan’s central bank is raising rates for the first time in 6 years
Over the past few months, there has been a lot of talk about Bank of Japan (BOJ) Governor Haruhiko Kuroda as the soon-to-be-replaced BOJ chief. Kuroda, however, surprised the global market on December 11. On Feb. 20, he explained that the BOJ will allow the Japanese 10-year bond yield to rise to 0.5% from the previous upper bound of 0.25%.
The decision follows the monetary policy measures introduced by the Bank of Japan in September. 2016. The BOJ explained on Tuesday that this change aims to “improve market activity and support smooth regulation across the yield system, while maintaining monetary conditions.”
Representatives from Mizuho Bank told CNBC in an interview that the move reflects the belief that there will be a hawkish BOJ head in the future. However, these hawkish bets may not materialize, the bank said on Tuesday. “This popular bet does not mean that it is a political fact or a political ideology that is intended,” Mizuho Bank added.
Gold bug and economist Peter Schiff is betting that the BOJ will raise rates again. Schiff tweeted, “The Bank of Japan got blown away and swung in the other direction.” “After keeping the 10-year JGB yield at 0.25%, the BOJ has raised the target rate to 0.5%. More hikes will come. In the United States, this means that the dollar and asset prices will fall and inflation will rise. Hedge fund manager James Lavish said the BOJ tried to make one final goal.
“At this time, the Bank of Japan has removed the goalkeeper and is expecting a final second round,” Lavish tweeted. “Maybe working overtime. Maybe somehow pulled it off. Except they went down 5-1. The game is over, but they don’t know it yet.
As of 8:41 am ET, the Japanese yen was up 3.42% against the US dollar in the last 24 hours and 4% in the last five days. The 30-day average shows that the yen is also up 5.73% against the greenback. The six-month metric shows that the yen is up 1.81% and year-to-date the yen is down 13.25% against the dollar.