Yen slips after BoJ says rates can be kept low

The yen slipped back towards a two-week low against the dollar on Friday after the Bank of Japan said interest rates can be kept low for some time after a widely expected increase from zero, the first in six years.
The BoJ unanimously voted to lift overnight rates to 0.25 percent, ending an era of zero rates aimed at pulling the economy out of its decade-long stagnation and fighting off deflation.
But with rates in the United States and the euro zone towering much higher at 5.25 percent and 2.75 percent respectively, traders and analysts said the BoJ's policy shift was unlikely to spur much of a yen rally just yet.
By a 6-3 vote the BoJ also raised its official discount rate to 0.4 percent from 0.1 percent, disappointing some market players who had expected a bigger increase to 0.5 percent.
"The decision is slightly bearish for the yen," said Joseph Kraft, managing director of forex trading at Morgan Stanley Japan. "But it's all pretty much within the parameters (of expectations) so there shouldn't be that big of a move in the markets."
The central bank also repeated that rate adjustments will be gradual and that rates can stay low for a while as long as inflation remains subdued. A 1.2 percent drop in the Nikkei share average due to record high oil prices also raised doubts about future BoJ rate increases.
Markets are generally looking for the BoJ to lift rates once more this year to 0.5 percent and possibly to 0.75 percent by the end of the current business year.
Following the BoJ decision, investors will tune in to comments from Governor Toshihiko Fukui at his post-meeting news conference.
"The yen is likely to face selling if Fukui says further tightening will be slow," said Kota Kimura, currency trading manager at Shinkin Central Bank. "A rate hike today won't be reason enough to buy the yen against the dollar."
The dollar was up nearly half a percent at 115.90 yen, just off the two-week high of 116.12 yen struck before the BoJ decision on electronic trading platform EBS. The Japanese currency had hit a one-month high of 113.45 yen on EBS earlier in the week.
The euro was up half a percent at 147.05 yen, in sight of the record high of 147.42 yen hit last week on EBS. The euro was little changed at $1.2690, well off a one-month high of $1.2865 touched last week. Japanese financial markets will be closed for a holiday on Monday.