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, yet the yen weakened after the decision — a reaction that may seem counterintuitive. The move suggests the rate increase was either fully anticipated by markets or judged modest relative to the pace of tightening elsewhere. When a currency falls despite a rate hike, it often signals that investors expected more, or that other factors — such as yield differentials with other major economies — are dominating.

For markets, the yen's slide matters beyond Japan. A weaker yen can lift Japanese exporters' overseas earnings when repatriated, but it also raises import costs and household inflation pressure. It can influence carry-trade dynamics, in which investors borrow in low-yielding currencies to fund higher-yielding assets, and it may draw attention from policymakers sensitive to sharp currency moves.

What to watch: future BOJ guidance on the pace of further increases, any verbal intervention from Japanese officials, and rate decisions from other major central banks. The gap between Japanese and foreign yields remains a key driver of the yen's direction.