The yen dropped by as much as 1.1% to 144.74 per dollar, its weakest since April 10.
It was last at 144.33 per dollar.
The central bank’s hold on interest rates was unanimous and anticipated, but investors saw the downgraded outlook as reducing the likelihood of future hikes.
“It was no surprise that they revised both the growth and inflation down, but both were significantly more than the market had expected,” said Al-Saraf, FX research associate at Danske Bank.
“The signals were clearly more dovish than expectations.”
The BOJ now expects underlying consumer inflation to reach levels consistent with its 2% target around the latter half of fiscal 2026 and onward, pushing back the timing by around a year from its previous projection in January.
Money market traders were now pricing in just 10 basis points of tightening by the end of the year, down from around 16 basis points before the meeting.
In a press conference after the meeting, BOJ governor Kazuo Ueda said there was no need to raise rates in haste when underlying inflation was stalling.
Dollar stabilises
The dollar has so far been one of the bigger casualties of the trade war as President Donald Trump’s flip-flopping tariffs have hit growth expectations and rattled confidence, notching its largest monthly fall for 2-1/2 years through April.
However, the greenback has come off lows as Trump has suspended much of his tariff barrage and hinted at deals, including with China, which has been hit with the highest US import taxes.
The dollar’s rebound extended today, pushing the euro down to a two-week low of US$1.1288 and sterling about 0.2% weaker to US$1.3302.
Most European markets were closed today for the May Day holiday.
“We’re in a window here where we’re on a de-escalation path, and there are some de-escalation trades around it,” said Richard Franulovich, Westpac’s head of currency strategy in Sydney.
Trump said yesterday that he had “potential” trade deals with India, South Korea and Japan and that there was a very good chance of reaching a deal with China.
US Trade Representative Jamieson Greer had said earlier yesterday that no official talks were happening with China although Yuyuan Tantian, a social media account affiliated with Chinese state broadcaster CCTV, said Trump’s administration had approached China seeking discussions.
A surge in imports to front-run tariffs dragged US GDP into contraction mode in the first quarter, data showed yesterday, though some economists took resilient private demand as a positive sign.
Jobless claims and the ISM manufacturing survey are due later today, although April labour market figures on Friday will be the next piece of hard data markets will use to gauge recession risks.
Expectations are for a slowdown in US hiring to 130,000.
“It will be interesting to see how markets react if we see a notable surprise because US data hasn’t played a role for the whole of April,” Danske Bank’s Al-Saraf said.
“If we look at market reactions, the dollar has not really moved with the US data.”
The Australian dollar dipped slightly against its strengthening US counterpart after a bumper April that saw it notch a multi-month peak.
The Aussie was last at US$0.6384, having recently found support after a slightly hotter-than-expected inflation reading toned down some of the more dovish bets on the rates trajectory.
The New Zealand dollar held its ground at US$0.5924.