FOREX-Japan's yen hits fresh 34-year low after BOJ holds interest rates

The yen hit its weakest level in three decades against the U.S. dollar after the Bank of Japan left interest rates on hold on Friday, leaving markets on edge about possible intervention, especially if hot U.S. inflation data pushes up the dollar.

The yen hit its weakest level in three decades against the U.S. dollar after the Bank of Japan left interest rates on hold on Friday, leaving markets on edge about possible intervention, especially if hot U.S. inflation data pushes up the dollar. The yen was 0.3% weaker at 156.21 per dollar in the Asian afternoon, its weakest since 1990.

The yen also slid to its weakest almost 16 years at 167.5 per euro and its weakest in nearly a decade on the Australian dollar. After a two-day meeting, the

Bank of Japan left its short-term interest rate target at 0-0.1% and made small upward adjustments in its inflation forecast. Investors had not expected a policy shift but took the decision as confirmation that only small moves lie ahead. "There is little indication the BOJ is considering raising rates in the near term," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities in Singapore.

"Today's ... meeting greenlights the yen carry trade and could see USD/JPY accelerate towards 160-161 over coming weeks." The yen's 9.7% drop against the dollar this year is the largest fall of any G10 currency, driven mostly by the wide gap between U.S. and Japanese government bond yields, which is more than 375 basis points for the 10-year tenor.

That encourages borrowing and short-selling yen in order to earn better interest, or carry, in dollars and other currencies. The gap could widen even further, and exacerbate pressure on the yen, if the Federal Reserve's preferred inflation measure - the U.S. core PCE price index - rises in data due at 1230 GMT.

INTERVENTION WATCH The markets focus now falls on BOJ Governor Kazuo Ueda's tone at his news conference at 3:30 p.m. in Tokyo (0630 GMT) and whether the yen's weakness prompts an official response.

"If dollar/yen keeps going up, (intervention) wouldn't surprise ... given you've had a lot of yen weakness and a lot of very public pushback from Japanese officials," said Joe Capurso, a strategist at the Commonwealth Bank of Australia. "The market's not really taken it seriously, so at some point they'll draw a line in the sand and say enough is enough."

The yen has slipped past levels at 152 and 155 to the dollar where traders had been wary of intervention. Japanese Finance Minister Shunichi Suzuki said on Friday he was closely watching currency moves and prepared to take full steps in response. Still, traders figure there is not much Tokyo can do to reverse the currency's slide while interest rates and momentum are heavily skewed against it.

Elsewhere, yen selling lifted the Australian and New Zealand dollars and the Aussie is set for its largest weekly gain in five months after a surprisingly hot inflation print. For the week it has gained 1.9% and it rose through its 200-day moving average to a two-week high of $0.6545 on Friday. The New Zealand dollar is up 1.3% this week to $0.5964.

Sterling and the euro were steady in the Asia session, holding gains made on Thursday when data showed the U.S. had grown at its slowest pace in nearly two years.

Sterling was last at $1.2506 and the euro at $1.0725.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)