The BoJ raised its key interest rate, but the JPY seems to have taken little notice. At the time of writing, USD/JPY is little changed, which is not what you would expect in response to a rate hike, especially one that was larger than expected. But let's take things one step at a time, Commerzbank’s FX analyst Volkmar Baur notes

BoJ raises its key interest rate to 0.25%

“The BoJ raised its key interest rate to 0.25% from 0-0.1%. In addition, it was announced that the volume of bond purchases, which was recently JPY 5.7 trillion per month, will be reduced by JPY 0.4 trillion per quarter until it reaches JPY 3 trillion per month at the beginning of 2026. As a reminder, these are gross purchases.”

“Since a larger volume of bonds is currently maturing each month, this reduces the amount on the BoJ's books. This brings us back to the assessment of a reactive central bank.”

“Even though the economy and inflation have recently come in below expectations, and even though the BoJ has lowered its own forecasts for growth and inflation, the move was justified by the fact that the economy and prices are evolving more or less as expected. In particular, the reference to the alleged virtuous cycle between prices and wages raises more questions than answers for many analysts.”