NEW YORK: The yen sank on Thursday as the Bank of Japan lowered growth forecasts due to US tariffs and left interest rates on hold, while the dollar continued its bounceback on growing optimism about trade deals between the United States and its partners.
Volume was thinner than normal, as many international markets were closed on Thursday for the May Day holiday.
The Japanese currency dropped to a four-week low against the dollar, which rose 1.7% to 145.45 yen. Against the euro, the yen dropped to a one-month low, with the single currency last up 1.2% at 164.02 yen.
The BOJ’s decision to hold interest rates was unanimous and anticipated, but investors saw the downgraded outlook as reducing the likelihood of future hikes. It now expects underlying consumer inflation to reach its 2% target around the latter half of fiscal 2026 and onward, pushing back the timing by a year from its previous projection in January.
“People have been banking on the BOJ hiking interest rates, but those expectations have moderated now that the BOJ has revised their growth and inflation forecast lower,” said Jayati Bharadwaj, global FX strategist at TD Securities in New York.
The dollar, on the other hand, rose against major currencies such as the euro and sterling, due in part to expectations of deals with many of the country’s trading partners including China. Those deals could soften the blow of US tariffs on most goods.
US Trade Representative Jamieson Greer had said on Wednesday that no official talks were happening with China.
The euro fell to a three-week trough versus the greenback and was last down 0.5% at $1.1273. Sterling also fell, down 0.3% at $1.3293.
“We have been flagging that the dollar has potential to bounce back in the near term, which could potentially give better entry levels to sell it again,” said TD’s Bharadwaj.