BOJ policy meeting: Japan maintains ultra-easy policy, leaves yield curve targets unchanged

Hong Kong

The yen fell on Wednesday after the Bank of Japan decided to maintain its ultra-easy monetary policy, defying market expectations that rising inflation could force the central bank to move away from low interest rates.

The BOJ kept its yield curve control (ICC) targets unchanged as it concluded a two-day policy meeting on Wednesday. It left the short-term interest rate on ultra-high-yield minus 0.1%, and the yield on ten-year Japanese government bonds (JGB) around 0%.

The OKC policy is a pillar of the central bank’s efforts to keep interest rates low and stimulate the economy.

The surprise decision sent the yen down. It briefly fell 2.7% against the US dollar around midday. It pared some losses later, last trading 1.3% lower at 129.76 yen to the dollar. Last Friday, the currency hit a seven-month high of 127.46 against the dollar.

“The Japanese economy, despite being impacted by factors such as high commodity prices, recovered as economic activity resumed as public health was protected from Covid-19,” the central bank said in its quarterly outlook report, adding that the slowdown in overseas economies it could put downward pressure on growth.

BOJ Governor Haruhiko Kuroda explained the decision at the press conference.

“Uncertainty about the Japanese economy is very high.” It is necessary to support the economy with our stimulus policy to ensure that companies can raise wages,” Kuroda said in comments reported by Reuters. “By maintaining an ultra-easy policy, we will strive to achieve target prices in a stable and sustainable manner, accompanied by wage increases.”

Kuroda expects core consumer inflation to slow below 2% towards the second half of fiscal 2023.

Kuroda is due to step down in April after a decade in office.

Last month, the BOJ shocked global markets by allowing the 10-year JGB yield to move 50 basis points either side of its 0% target, in a move that fueled speculation that the central bank could follow the same path as other major economies by letting rates to grow further.

The unexpectedly hawkish decision sent stocks tumbling, while yen and bond yields rose.

Kuroda said there was no need to widen the yield range further after the December move.

“It hasn’t been long since we decided on our measures in December.” It will probably take some time for the measures to begin to have an effect on improving the functioning of the market. “With our flexible market operations, however, we expect the market function to improve,” he said, according to Reuters. “The ICC is therefore likely to be viable.”

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