Yen sinks after Bank of Japan raises rates to highest level since 1995 - Financial Times

The Bank of Japan raised its policy rate to the highest level since 1995, yet the yen weakened rather than strengthened after the decision. That reaction may seem counterintuitive, but it reflects how currency markets price expectations ahead of outcomes. If investors had already positioned for a hike — or for even more aggressive tightening — a move that simply meets expectations can trigger profit-taking and a softer currency.

The development matters because the yen has long been associated with ultra-low borrowing costs, making it a funding currency for global carry strategies. A gradual shift in Japanese policy can influence cross-border capital flows, bond yields and risk sentiment well beyond Japan.

What to watch: the pace of future BOJ normalization, official commentary on currency moves, and whether rate differentials with other major economies narrow. For observers, the key lesson is that exchange rates respond less to the level of rates than to how policy compares with what markets had already priced in.