Yen Weakens as Bank of Japan Adjusts Growth Forecasts

NEW YORK: The yen experienced a decline on Thursday after the Bank of Japan (BOJ) revised its growth projections downward, citing the impact of US tariffs, and chose to maintain its current interest rate policy. Concurrently, the dollar strengthened amidst rising optimism regarding potential trade agreements between the United States and its international partners.

Trading volumes were lower than usual due to the closure of numerous global markets in observance of the May Day holiday.

The Japanese yen depreciated to its lowest level in four weeks against the dollar, with the dollar climbing 1.7% to reach 145.45 yen. Similarly, the yen weakened against the euro, hitting a one-month low, as the euro increased by 1.2% to trade at 164.02 yen.

The BOJ’s decision to keep interest rates steady was widely expected and implemented unanimously. However, the revised economic outlook led investors to believe that future rate increases are now less probable. The central bank now anticipates that core consumer inflation will reach its 2% target around the latter part of fiscal year 2026 and beyond, which is a year later than their previous estimate from January.

Analyst Insights

“Expectations for BOJ interest rate hikes had been building, but these have now diminished following the bank’s revised growth and inflation forecasts,” noted Jayati Bharadwaj, a global FX strategist at TD Securities in New York.

Conversely, the dollar gained ground against major currencies like the euro and sterling. This appreciation was partly fueled by anticipation of forthcoming trade agreements with several of the United States’ trading partners, including China, which could potentially alleviate the effects of US tariffs on various goods.

On Wednesday, US Trade Representative Jamieson Greer stated that there were no formal discussions taking place with China.

The euro declined to a three-week low against the dollar, eventually decreasing by 0.5% to $1.1273. The British pound also weakened, falling by 0.3% to $1.3293.

Bharadwaj from TD Securities added, “We have been suggesting that the dollar has the potential for a short-term recovery, which could offer more favorable opportunities to sell it again later.”