The yen fell after the Bank of Japan decided to maintain its ultra-easy monetary policy on Wednesday, 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 (YCC) targets unchanged at the end of a two-day policy meeting on Wednesday. That left short-term interest rates at an ultra-dovish minus 0.1% and 10-year Japanese government bond (JGB) yields at 0%.
The YCC policy is a pillar of the central bank’s efforts to keep interest rates low and stimulate the economy.
The surprise result melted the yen. It briefly fell 2.7% against the US dollar. It later pared some losses, last trading down 1.3% to 129.76 yen per dollar. Last Friday, the currency hit a seven-month high of 127.46 against the greenback.
“Although Japan’s economy has been hit by factors such as high commodity prices, public health has been protected from Covid-19 as the resumption of economic activity has progressed,” the central bank said. said In its quarterly outlook report, it said a slowdown in foreign economies could put downward pressure on growth.
BOJ Governor Haruhiko Kuroda explained the decision At a press conference.
“Uncertainty regarding Japan’s economy is very high. It is essential to support the economy with our stimulus policy to ensure that companies can to raise wagesKuroda said in published comments Reuters. “By maintaining a very easy policy, we will try to achieve our price target in a consistent and consistent manner with wage increases.”
Kuroda It expects core consumer inflation to fall below 2% in late fiscal 2023.
Kuroda is set to step down in April after a decade in office.
Last month, the BOJ Shocked global markets The central bank may follow the same direction as other major economies by allowing the 10-year JGB yield to move 50 basis points either side of its 0% target, a move that has fueled speculation.
The unexpected hawkish result sent stocks tumbling, while sending the yen and bond yields higher.
Kuroda said there was no need to further expand yield levels following December’s move.
“It has not been long since we decided on our actions in December. It will take some time before we start taking steps to correct market activity. However, with our flexible market activities, we expect market activity to improve,” he said, according to Reuters. “The YCC, therefore, will remain stable.”