BOJ Policy Meeting: Japan Maintains Ultra-Dovish Policy, Leaves Yield Curve Targets Unchanged

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The yen plunged on Wednesday after the Bank of Japan decided to maintain its ultra-loose monetary policy, defying market expectations that rising inflation could force the central bank 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. It left the short-term interest rate at an ultra-dovish level of minus 0.1% and the 10-year Japanese government bond (JGB) yield around 0%.

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

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

“Japan’s economy, although affected by factors such as high commodity prices, has recovered as the recovery in economic activity has progressed while public health has been shielded from the Covid- 19,” the central bank said in its quarterly outlook report, adding that slowdowns in foreign economies could put downward pressure on growth.

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

“Uncertainty about the Japanese economy is very high. It is necessary to support the economy with our stimulus policy, to ensure businesses can raise wages,” Kuroda said in comments published by Reuters. “By maintaining an ultra-easy policy, we will strive to achieve our price target 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 power.

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 which the central bank could follow the same direction as other major economies by allowing rates to rise further.

The unexpected hawkish move sent stocks tumbling, while pushing the yen and bond yields higher.

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

“It has not been long since we decided on our measures in December. It will probably take a little longer for the measures to start having an effect on the functioning of the market. With our flexible market operations, however, we are expect market function to improve in the future,” he said, according to Reuters. “YCC is therefore likely to be sustainable.”


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