At 157.10 yen to the dollar on Friday morning — a level that would have been unthinkable a decade ago — the currency markets delivered their verdict on the Bank of Japan's latest move almost before the ink was dry. The BoJ voted to raise its benchmark interest rate by 25 basis points to 1.25%, the highest level the rate has reached since 1995.

The decision was not, however, unanimous: two board members voted against the hike, and that dissent proved enough to unsettle traders who had largely priced in a clean sweep. The move places the BoJ alongside the US Federal Reserve and the European Central Bank, both of which tightened monetary policy earlier this month in what analysts are now describing as a co-ordinated, if unplanned, global squeeze on inflation. Japan's central bank has been on a tightening path since 2024, when it first lifted its policy rate out of negative territory — an era of ultra-loose monetary conditions that had lasted, in various forms, for more than two decades. The yen's steady slide against the dollar this year had intensified pressure on policymakers, who were forced to intervene in currency markets to prevent further destabilisation.

Jim Reid, a strategist at Deutsche Bank, noted that markets had reacted sharply not to the rate decision itself but to the visible cracks within the BoJ's voting committee. The yen fell 0.72% on the day, and Japan's government bond yield curve steepened — a sign that investors are reassessing how quickly the central bank will actually follow through on further hikes.