The Bank of Japan raised interest rates by 0.25%, bringing them to the highest level in 17 years. While a similar move in August 2024 triggered a sharp market selloff due to traders covering massive yen short positions, this time the impact is expected to be muted. CFTC data shows the yen short float peaked in July, with traders already deleveraging in anticipation of a hike. Additionally, the strong U.S. Dollar Index (DXY), near 2022 levels, could benefit from this, as higher rates abroad may help balance currency strength, improving the U.S. trade deficit. The USD/JPY remains largely unchanged in response.
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