Bank of Japan Keeps Interest Rates Unchanged, Yen Oscillates Awaiting Governor's Speech

Huìtōng Financial APP News — On Thursday (March 19), during Asian trading hours, the yen experienced some selling pressure against the US dollar, with USD/JPY currently trading around 159.65. Although the Bank of Japan decided to keep its policy interest rate unchanged at 0.75% as expected by the market, the overall performance of the dollar was weaker compared to other major currencies.

This marks the second consecutive meeting where the Bank of Japan has held steady, mainly due to ongoing conflicts in the Middle East involving Israel and Iran, which have caused oil prices to surge continuously, posing a serious threat to Japan’s economic outlook. As one of the countries most dependent on energy imports globally, rising oil prices directly increase import costs, intensify imported inflation pressures, and may suppress consumer spending and corporate investment, creating stagflation risks.

This situation puts the Bank of Japan in a dilemma between raising interest rates and maintaining easing policies: raising rates could curb inflation and support the yen, but might further hinder the fragile economic recovery; maintaining the current stance could lead to further yen depreciation and runaway inflation expectations.

Market expectations for a rate hike at this meeting have fallen to nearly zero. Investors are now focusing on Governor Ueda Kazuo’s upcoming press conference, looking for the latest guidance on monetary policy outlook.

On Tuesday, Ueda expressed confidence that prices and wages will continue to accelerate. He stated, “We expect core inflation to gradually converge toward our 2% target during the second half of fiscal 2026 through fiscal 2027.” He added that the Bank of Japan will appropriately guide monetary policy to achieve stable and sustainable inflation.

Meanwhile, the dollar experienced a slight retreat after Wednesday’s Federal Reserve policy meeting.

The Fed kept the federal funds rate unchanged within the 3.50%-3.75% range as expected, and indicated that it would only consider adjusting monetary policy if there are clear signs of inflation easing. This statement further cooled market expectations for a near-term rate cut. The dollar index initially rose briefly but then weakened, which contributed to the yen’s relative rebound.

Overall, the recent slight decline in USD/JPY mainly reflects a temporary cooling of dollar safe-haven demand and the short-term impact of the Bank of Japan maintaining its current stance. However, the stagflation risks stemming from Japan’s energy dependence and the Fed’s delay in easing due to war-related inflation concerns still provide medium- to long-term bullish support for USD/JPY.

Investors should closely monitor Ueda Kazuo’s press conference, the latest developments in Middle East tensions, and US economic data scheduled for the rest of the week, as these factors will directly influence short-term exchange rate directions.

If both the Fed and the Bank of Japan maintain cautious tones, the dollar’s relative strength is likely to persist, and USD/JPY may regain upward momentum after a correction. In the short term, the 159.00–160.00 range will remain a key battleground for bulls and bears.

USD/JPY Daily Chart Source: YiHuiTong

As of 12:09 Beijing time on March 19, USD/JPY is quoted at 159.65/66.

(Editors: Wang Zhiqiang HF013)

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