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

The Bank of Japan raised its policy rate to the highest level since 1995, according to the Financial Times, yet the yen weakened after the decision. That combination — a rate hike met with currency depreciation — may seem counterintuitive, but it reflects how currency markets price expectations rather than single announcements.

A likely explanation is that the move was widely anticipated, and the central bank's accompanying guidance may have signaled a slower pace of further tightening than some traders had positioned for. When a hike is already priced in, the reaction often hinges on what policymakers say about the path ahead. A narrowing rate gap with other economies can support a currency over time, but only if markets expect that gap to keep shrinking.

For observers, the key question is whether this marks the start of a sustained normalization in Japanese monetary policy or a one-off adjustment. Watch upcoming BOJ communication, Japanese inflation and wage data, and how global bond yields behave. The yen's response also matters for Japanese exporters, imported inflation, and carry trades that borrow in yen to fund higher-yielding assets.