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HomeMarketYen surges as Bank of Japan surprises by letting benchmark rate rise

Yen surges as Bank of Japan surprises by letting benchmark rate rise

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TOKYO — The Bank of Japan made a surprise decision to let a benchmark interest rate rise to 0.5% from 0.25%, pushing the yen higher and ending a long period in which it was the only major central bank not to increase rates.

The BOJ said the yield on the 10-year Japanese government bond could rise as high as 0.5% from a previous cap of 0.25%. The central bank has set a target range around zero for the benchmark government bond yield since 2016 and used that as a tool to keep overall market interest rates low.

The 10-year yield, which had been stuck around 0.25% for months because of the central bank cap, quickly moved up to 0.46% in afternoon trading. 

The yen rose in tandem. In Tuesday afternoon trading in Tokyo, one dollar
USDJPY,
-2.44%
bought between 133 and 134 yen, compared with more than 137 yen before the BOJ’s decision.

The Nikkei Stock Average
NIK,
-2.69%,
which had been slightly higher in the morning, was down more than 2% as investors digested the possibility that companies would have to pay higher interest on their debt. Also, the weak yen has pushed up profits for many exporters, so a stronger yen could be negative for stocks. 

An expanded version of this report appears on WSJ.com.

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Credit: marketwatch.com

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