By Rae Wee
SINGAPORE (Reuters) -The dollar flirted with a two-year peak on Thursday after the Federal Reserve signalled a slower pace of rate cuts in 2025, while the yen blipped lower after the Bank of Japan (BOJ) stood pat on rates.
The BOJ kept interest rates steady on Thursday as expected, underscoring policymakers’ preference to spend more time scrutinising whether wage hikes will broaden and keep inflation durably around its 2% target.
The yen fell in the immediate aftermath of the decision, weakening roughly 0.3% against the dollar to a one-month low of 155.28, before paring some of those losses.
The Japanese currency last traded 0.15% lower at 155.04 per dollar.
“So far, it’s no surprise here, but I guess yesterday’s FOMC result put the BOJ sort of in a corner where the BOJ cannot be too dovish so that they can keep the yen from falling. At the same time, actually they cannot be too hawkish either,” said Naka Matsuzawa, chief strategist at Nomura Securities in Tokyo.
The BOJ would not want to exacerbate current uncertainties in global markets, like they did in July, he said, referring to an episode when BOJ hawkishness sparked a sell-off in yen-funded trades. “So, putting off the right hike decision this time was probably the only choice they had now.”
A more measured pace of Fed cuts next year is set to keep rate differentials between the U.S. and Japan wide for some time to come and the yen under pressure.
In the broader market, the fallout from a hawkish tilt by the Fed on Wednesday continued to ripple across markets, with moves in currencies particularly pronounced as traders heavily dialed back on easing expectations next year.
The U.S. dollar’s rally sent its peers including the Sw