Investors Warn BOJ's Interest Rate Hike Will Weaken Yen

Investors have reacted to the Bank of Japan’s decision to raise its short-term interest rate to 0.25% and to reduce the amount of bonds it is buying under its quantitative easing program, Reuters reported.

The BOJ hiked more aggressively than the 10 basis points expected.

"Bots were quick to bid the yen on the surprise of a 15-basis-point hike, but gains evaporated just as quickly on the hollow headline numbers. Yes, the BOJ hiked more aggressively than the 10 basis points expected, but they fell short on their 'detailed plan' of tapering. And in the grand scheme of things, the 15 basis point hike still only brings their interest rate to 25 basis points. I suspect the yen will weaken,” Matt Simpson of City Index Brisbane said.

"The BOJ took the plunge. Despite sluggish consumer spending, monetary officials sent a decisive signal by raising interest rates and allowing for more gradual balance sheet reduction. Rising wages are offering room for optimism that growth will recover in the coming quarters. Rising inflation expectations also open the path for ongoing monetary policy normalization by the BOJ. Barring major disruptions, the BOJ is on course to tighten further, with another interest hike likely by the start of next year," Fred Neumann of HSBC Hong Kong stressed.