BOJ keeps ultra-loose policy, dovish guidance, yen skids

boj-keeps-ultra-loose-policy,-dovish-guidance,-yen-skids
BOJ keeps ultra-loose policy, dovish guidance, yen skids

The Bank of Japan (BOJ) has decided to maintain ultra-low interest rates and continue supporting the economy until inflation reaches its 2% target. This suggests that the BOJ is not in a hurry to phase out its massive stimulus program. This decision contrasts with those of central banks in the US and Europe, which have signaled their intention to keep borrowing costs high to control inflation.

Governor Kazuo Ueda stated that Japanese companies are raising prices more than expected, which is preventing inflation from slowing down. This indicates that the conditions for reducing monetary support are gradually falling into place. However, Ueda emphasized the need to assess data, particularly wages and service prices, before raising interest rates. He stated that the BOJ will maintain ultra-loose monetary policy until inflation stably and sustainably achieves the price target.

At its two-day meeting, the BOJ maintained its short-term interest rate target of -0.1% and the 10-year bond yield target of around 0%. It also kept the allowance band of 50 basis points on either side of the yield target and the hard cap of 1.0% unchanged. The central bank retained its forward guidance, which includes a pledge to take additional easing measures if necessary.

Ueda’s remarks caused the yen to fall sharply, reaching 148.32 to the dollar. This year, the yen has depreciated by more than 11%. Market players interpreted Ueda’s comments as dovish, leading to the yen’s decline. There has been speculation in the markets that the BOJ will soon end negative rates and its yield cap due to criticism of their impact on the yen and import costs.

Data showed that Japan’s core inflation remained above the BOJ’s 2% target for the 17th consecutive month, reaching 3.1% in August. However, BOJ policymakers believe that this inflation could be transitory and may not reflect a solid pick-up in economic activity. Market expectations of a policy shift increased after Ueda’s recent interview, where he suggested that the BOJ could have enough data by year-end to determine whether to end negative rates. A RushHourDaily poll indicated that most economists predict an end to negative interest rates in 2024.

Ueda dismissed the view that his remarks signaled an imminent policy shift, stating that there are too many uncertainties to determine the timing of an exit. He emphasized the need for strong demand to support inflation and the confirmation of a positive wage-inflation cycle. The BOJ faces challenges in exiting its radical stimulus, including weak global economic signs and the risk of triggering a spike in bond yields.

Economists at Oxford Economics believe that the BOJ will maintain the status quo until at least the middle of next year to carefully assess whether the 2% inflation target can be achieved within Ueda’s five-year term. However, keeping ultra-low rates has its costs. The weakening yen, driven by prospects of higher US interest rates, could support exports but dampen consumer spending by increasing import costs. The currency’s slide has led to verbal warnings from government officials, putting pressure on the BOJ to moderate the impact on households.

Ueda stated that it is desirable for currencies to move stably, reflecting fundamentals. Currency movements have an impact on economic and price developments, and the BOJ is monitoring them carefully as they affect inflation.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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