The Japanese currency slid as much as 0.8% to ¥150.38 per dollar, the weakest in two weeks, as of 2:20pm in Tokyo.
Government bonds advanced on the BOJ’s slightly dovish tone, sending the 10-year yield down 2 basis points to 0.735%.
The benchmark Topix equity gauge climbed 0.8% while the Nikkei 225 Stock Average rose 0.4%.
Ahead of the decision, some 90% of central bank watchers had seen the risk of authorities ending their negative rate settings at the meeting.
The likelihood had been bolstered after the largest union group announced first-round results of annual wage negotiations that exceeded expectations.
“The decision today itself may be considered quite dovish, dragging the yen lower,” said a fellow at Tokyo’s Market Risk Advisory Co Koji Fukaya.
Koji said the ending of negative rates and yield-curve control was already priced in.
“Keeping an accommodative stance does not mean they will not raise rates from here and therefore, investors would need time to assess the policy outlook,” Koji added.
The yen had weakened slightly over the course of the week leading up to the BOJ decision as the dollar appreciated, on the outlook for slowing rate cuts from the Federal Reserve.
Expectations for the yen to outperform its peers this year had all but evaporated recently, with strategists earlier this month forecasting the currency to end 2024 within a few percent of where it started.
Meanwhile, benchmark 10-year Japanese government bond yields had been edging higher while the nation’s stocks have rallied this year, with the Nikkei 225 reclaiming the high it set back in 1989.
High rates and a strong currency in the US have kept Japan’s 10-year yields and the yen under pressure. The 10-year US Treasury yield is around 4.3%.
“The dynamic looks to continue despite the BOJ’s hike given ongoing strength in the US economy and resilient consumer spending there,” Koji said.
In addition, Japan’s central bank is expected to continue to buy bonds and pledges to respond to any rapid rise in yields.
“The ‘new era’ of positive interest rates is a confirmation of the recovery in the Japanese economy,” said Saxo Capital Markets Pte market strategist Charu Chanana.
“Higher returns on savings and investments in Japan can fuel spending power for consumers, which builds a case for Japanese equities to extend their momentum,” Charu said.