Governor Kazuo Ueda stated during a press conference that the BOJ is taking time to assess the implications of global economic uncertainties, emphasizing that future monetary policy will be guided by "economic, price, and financial developments." The central bank opted to keep rates steady at 0.25%, a decision that was largely anticipated.
The dollar peaked at 144.50 yen, marking its highest level since early September, and was last seen up 0.92% at 143.92. The euro also gained ground against the yen, rising 0.93% to 160.59.
Shaun Osborne, chief FX strategist at Scotiabank in Toronto, noted, "We're observing some consolidation in the markets following the significant dollar-yen movement in recent days since the Fed's actions." He referred to the Federal Reserve's decision on Wednesday to reduce interest rates by half a percentage point.
Osborne added, "The statement appeared somewhat more cautious than the markets had hoped, especially with expectations of another rate cut from the Bank of Japan before Christmas. I still believe that is likely." The dollar has experienced volatility since the Fed initiated its monetary policy easing cycle.
The euro experienced a slight decline of 0.01% against the dollar, trading at $1.115925. Meanwhile, the U.S. dollar index, which gauges the dollar's performance against a basket of major currencies, increased marginally to 100.75, remaining just above a one-year low.
Adam Button, chief currency analyst at ForexLive in Toronto, noted, "There is a prevailing sentiment in the market that the Bank of Japan may not need to raise interest rates, and attention is shifting towards the political landscape in Japan."
Market expectations suggest nearly a 49% likelihood that the Federal Reserve will implement another 50-basis-point rate cut in November, with a total of 74.8 basis points of cuts anticipated by year-end. By the conclusion of 2025, the Fed's policy rate is projected to settle at 2.85%, which is now considered the Fed's neutral rate estimate.
This dovish perspective has fueled optimism for sustained U.S. economic growth, leading to a significant rally in risk assets. Currencies tied to global growth and commodity prices also saw gains, with the Australian dollar peaking at $0.68285 before retreating 0.13% to $0.68060.
Button remarked, "This situation seems counterintuitive given the substantial cut from the Fed and the Bank of Japan's decision to maintain rates. The dollar-yen exchange rate indicates that the market is becoming more optimistic about global growth."
In an unexpected move, China maintained its benchmark lending rates during the monthly fixing on Friday. The Chinese government has hinted at potential stimulus measures, partly facilitated by the Fed's aggressive easing, which has driven the dollar to a 16-month low against the yuan.
Sources indicate that major Chinese state-owned banks were active in purchasing dollars in the onshore foreign exchange market on Friday to curb the yuan's rapid appreciation. The dollar fell 0.23% to 7.043 against the offshore Chinese yuan.
On Thursday, the Bank of England opted to keep interest rates steady, with its governor cautioning against the risks of cutting too quickly or too deeply. The pound rose 0.24% to $1.33180, buoyed by the release of robust British retail sales data on Friday.