Yen sinks after Bank of Japan raises rates to highest level since 1995 - Financial Times

The Bank of Japan raised its policy rate to the highest level since 1995, yet the yen weakened after the decision. That combination may look counterintuitive, but it illustrates how currency markets price expectations rather than headlines alone. If investors had already positioned for a hike, or read the accompanying guidance as gradual, the yen can soften even as rates rise.

For global markets, the yen's move matters because it is a key funding currency in carry trades, where investors borrow in low-yielding currencies to buy higher-yielding assets. A weaker yen can sustain that dynamic, but it also raises the risk of sharper reversals if volatility spikes or rate differentials narrow.

What to watch: the pace of future BOJ tightening, guidance on inflation and wages, and any signals from Japanese authorities about excessive currency moves. The rate level itself is less important than the path — and how other central banks respond.