(Bloomberg) -- The yen fell and Japanese sovereign bonds advanced after the Bank of Japan said it would reduce debt purchases but delayed providing details until its next policy meeting.

The central bank’s decision to keep its benchmark rate unchanged was widely expected, yet the lack of guidance left traders uncertain around future policy action. The yen plunged as much as 0.8% to 158.26, the weakest level in nearly seven weeks, before paring the move to trade 0.1% lower against the dollar at around 157.22. Benchmark 10-year bonds trimmed an earlier gain, with yields three basis points lower at 0.944%.

Swaps-market pricing shows reduced bets for a rate hike by the BOJ next month. Ueda said that the bank could lift rates in July if economic conditions warrant such a move.

While the gap between Japanese and US bond yields remains wide for now, anticipation of lower interest rates in the US may be offering the currency some support, according to RBC Bluebay Asset Management.

“The BoJ continues to be very conservative in terms of removing monetary accommodation, notwithstanding this fueling a weaker yen and driving up inflationary pressures,” said Mark Dowding chief investment officer at RBC Bluebay Asset Management. “In the short term, renewed hopes for lower US rates may help limit additional yen weakness”

Ueda said he wants to proceed carefully when the bank starts reducing its bond purchases, and it’s hard to say how long the reduction phase will continue. He added financial conditions remain quite accommodative.

“It’s not at all clear at this point if the BOJ actually decided on a specific reduction of the bond purchase amount, or it will only decide on this at the next meeting,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. 

Intervention Concern 

Authorities have signaled they’re ready to step into the market to support the yen if weakening resumes. Japan spent a record ¥9.8 trillion ($62.1 billion) earlier this year to prop up the currency after it fell to a 34-year low against the dollar.

“With the Yen above 157, it won’t take much for a renewed test of 160, which prompted intervention the last time this was reached,” Dowding added.

The yen is the weakest among Group-of-10 currencies against the greenback so far this year, tumbling more than 10%, as the Federal Reserve refrains from cutting its benchmark interest rate amid resilient economic growth and sticky inflation. Fed officials penciled in just one interest-rate cut this year and forecast more cuts for 2025 as they voted unanimously to keep the benchmark rate earlier this week. 

“The wide yield gap may stay until the Fed delivers its interest-rate cuts, making it difficult to hold dollar-long positions versus the yen,” said Tsutomu Soma, a bond and currency trader at Monex Inc. “The bias remains for the yen to remain weak.”

(Updates market moves, adds commentary.)

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