People cross the street in Ginza district, Tokyo. The Bank of Japan left monetary policy unchanged on Wednesday.
Philip Fong | afp | beautiful pictures
The Japanese currency weakened against the US dollar after the Bank of Japan surprised the market by keeping the yield curve’s tolerance band unchanged.
The Japanese yen weakened 2.6% against the US dollar after the decision was announced and stood at 131.47, swinging at the highest level since June 2022.
“Japan’s economy is projected to continue to grow at a rate above its potential growth rate,” the Bank of Japan said in a statement. The central bank left interest rates unchanged at an extremely dovish -0.1% – in line with expectations and maintained the same rate held since 2016.
Its decision not to change its monetary policy came after the central bank caught global markets off guard in its previous meeting by extending its tolerance for 10-year government bond yields. year from 25 basis points to 50 basis points in December.
Since last month’s move, the 10-year JGB yield has repeatedly exceeded the upper ceiling.
The 10-year JGB yield breached the upper ceiling of the band for the fifth straight session on Wednesday morning before falling to 0.385 percent.
‘Reflex
Nomura’s head of forex strategy Yujiro Goto said that while the move will disappoint bullish traders for the Japanese yen, the currency’s weakness may be temporary.
“I think the initial reaction [for the yen reaching] 130 to 131, or potentially 132 is an immediate reaction after ‘no change’ today,” he said on CNBC’s “Street Signs Asia.”
“In the medium term, over the next 2-3 months, I think the yen’s bias will still be down to 125, even after today’s disappointment,” he said.
Goto said the currency will strengthen in hopes of a policy change in the near future, noting that the term of BOJ Governor Haruhiko Kuroda is coming to an end.
“The market should continue to expect [the BOJ] to tweak or change [its] monetary policy after some point, especially after Kuroda’s retirement,” he said.
Shigeto Nagai of Oxford Economics said the BOJ’s widening move had “boosted” expectations of more changes ahead.
“Today, the BOJ really wants to calm those speculations and anticipate normalization,” he said, adding that the central bank will continue to be pressed for change.
Lots of pressure ahead
As inflation continues to rise in Japan, the central bank will face further pressure ahead of a leadership change.
“Inflation in Japan is doing something it hasn’t done in 40 years,” Vanda Research’s Viraj Patel said in a tweet, adding that the Bank of Japan is at risk of “falling into” the trap like the US Federal Reserve in labeling inflation. is “temporary.”
The Bank of Japan used wording similar to the Fed’s description of inflation before the US central bank began repeatedly raising interest rates to tame rising prices, describing it as “a Transmission”.
“The annual growth rate of CPI is likely to be relatively high in the short term as the impact of consumer price pass-through on rising costs leads to higher import prices,” the report said. the central bank said in its latest statement.
The Bank of Japan has revised its 2023 nationwide core inflation forecast from 2.9% to 3%. National inflation data is expected on Friday.
