Yen rises after Japan hikes interest rates, eyes turn to Fed

HONG KONG, China — The yen rose against the dollar Wednesday after Bank of Japan hiked interest rates for the second time in 17 years, while equity markets in Asia rose on growing hopes for a cut in US borrowing costs.

After more than a decade of pursuing an ultra-loose monetary policy to kickstart the stuttering economy and flatlining inflation, the BoJ has this year shifted its focus as prices continue to rise at rates above the bank's target.

That saw a lift in March to around zero to 0.1 percent -- the first hike since 2007 -- marking a shift away from a long-running campaign of negative rates.

Wednesday's decision put them at 0.25 percent.

Bets on another BoJ increase had surged in recent days, pushing the yen to 152.12 to the dollar and putting the currency on course for its best month in a year and a half.

However, officials have had to tread a fine line as the economy remains fragile.

Many commentators had predicted the bank would stand pat this month, but Japan's newly appointed top foreign exchange official said the benefits of a weaker yen were outweighed by the demerits.

"While the recent depreciation of the yen has both advantages and disadvantages, the demerits are becoming more noticeable," Atsushi Mimura told Bloomberg in an interview Monday, pointing to higher energy and food prices as well as the effect on importers.

The yen's advance comes just weeks after the unit hit a nearly four-decade low close to 162 at the start of July. Higher rates push up government yields, making assets more attractive to anyone looking for better returns.

Before the announcement Stefan Angrick at Moody's Analytics warned that at best a small increase would be an added drag, and at worst "it would tip the economy into recession and precipitate broader financial market disruptions".

However, Hiroshi Namioka at T&D Asset Management was less concerned, saying ahead of the announcement he thought BoJ boss Kazuo Ueda "wants to expand the scope for lowering policy rates for the future".

He said the impact of an increase "on the real economy, such as consumption and capital investment, will be limited. In fact, unless the policy interest rate is raised, inflation may not