The Japanese yen remained under pressure on Friday after the Bank of Japan left interest rates unchanged, a widely anticipated decision. At the same time, the U.S. dollar moved toward its sharpest weekly decline since June, as geopolitical tensions and sudden policy shifts related to Greenland unsettled global markets.
Following the BOJ’s announcement, the yen weakened slightly to 158.54 per dollar, despite the central bank upgrading its economic growth and inflation outlook. The revisions underscored the BOJ’s willingness to continue gradually raising borrowing costs from still-low levels.
Although the BOJ lifted its policy rate to a 30-year high last month, the move has done little to support the currency. Market participants remain wary that a break above 160 per dollar could prompt Japanese authorities to intervene in foreign exchange markets to defend the yen.
Moh Siong Sim, an FX strategist at OCBC, said investors had hoped persistent yen weakness would force a more decisive policy response. Instead, the BOJ maintained its existing guidance, an outcome he described as largely neutral for markets. He added that sustained currency weakness is already indirectly reflected in the central bank’s economic projections.
Attention now turns to comments from BOJ Governor Kazuo Ueda, who is expected to elaborate on the decision at a scheduled news conference. Investors will be watching closely for signals on the timing of the next rate hike and whether policymakers adopt a more hawkish tone to stabilize the yen.
Fred Neumann, chief Asia economist at HSBC, said Governor Ueda’s remarks may lean slightly hawkish, keeping upcoming BOJ meetings “live” for further tightening. He also noted that the presence of a dissenting vote at the meeting suggests additional rate hikes remain under consideration.
The yen has faced persistent selling pressure since Sanae Takaichi assumed office as Japan’s prime minister in October. Since then, the currency has fallen more than 4%, weighed down by fiscal concerns and hovering near levels that have previously triggered verbal warnings and fears of intervention.
This week’s sharp sell-off in Japanese government bonds highlighted investor anxiety over Japan’s fiscal outlook. Yields surged to record highs after Takaichi called a snap election for February and pledged tax cuts. While bond markets have since stabilized somewhat, sentiment remains fragile.
Carol Lye, a portfolio manager at Brandywine Global, said authorities need to present a clearer plan to calm markets. Without concrete action, she warned, volatility across the government bond curve is likely to persist, especially as rate hikes are not arriving quickly enough to reassure investors.
Dollar selling gathers pace
Broader geopolitical developments also weighed on currency markets. U.S. President Donald Trump said he had secured U.S. access to Greenland through an agreement with NATO, while easing tariff threats against Europe and ruling out the use of force to take control of the autonomous Danish territory.
Despite easing some immediate concerns, the dollar bore the brunt of investor unease earlier in the week as U.S. assets came under heavy pressure amid heightened geopolitical uncertainty.
The dollar index, which tracks the greenback against six major currencies, stood at 98.366 after falling 0.58% in the previous session. It is on track for a weekly decline of about 1%, its worst performance since June 2025.
Elsewhere, the euro held steady at $1.1746, near a three-week high, while sterling traded at $1.3496, close to a recent two-week peak. The Australian dollar was little changed at $0.6841, while the New Zealand dollar slipped 0.3% to $0.59105.
Thierry Wizman, global FX and rates strategist at Macquarie Group, said that while the Greenland deal may resolve short-term issues around tariffs and conflict, it does little to address deeper concerns about strained alliances. Such tensions, he warned, could ultimately undermine confidence in the U.S. dollar’s role as the world’s dominant reserve currency.
