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

The Bank of Japan has raised its policy rate to its highest level since 1995, according to the Financial Times, yet the yen weakened after the decision. That combination — a rate hike alongside a falling currency — may seem counterintuitive, but it often reflects what markets had already priced in. If investors expected a larger increase, or more hawkish guidance on future moves, the actual decision can read as cautious by comparison, leaving the yen exposed.

For markets, the yen's slide matters because it is a key funding currency in global carry trades, where investors borrow in low-yielding currencies to buy higher-yielding assets. A weaker yen can sustain that dynamic, influencing flows across bonds, equities and emerging markets. It also affects Japanese exporters' competitiveness, imported inflation, and the tone of Japan's bond market.

What to watch: the pace of any further BOJ tightening, official comments on currency moves, and whether the yen's weakness becomes a topic for policymakers. Rate differentials with other major economies remain central to the yen's direction.