maintained ultra-low interest rates on Friday, confirming that it won’t join the Federal Reserve and other major global central banks in tightening monetary policy.
The Japanese central bank kept its target for short-term interest rates at minus 0.1% and its target for the 10-year Japanese government bond yield at around zero.
Traders took the BOJ’s decision to stand pat as a sign that the interest-rate differential between Japan and the U.S. would continue to widen. The yen weakened to around 134.50 to the dollar shortly after the announcement from around 133.30 before the decision, although it subsequently recovered some ground.
On Monday, the yen fell to its lowest level since 1998. The weak yen means Japan is paying more for imported food and energy.
Interest-rate differences are the main reason markets have pushed the yen lower, because investments in other currencies are yielding more.
The Fed on Wednesday raised its policy target by 0.75 percentage point, the largest interest-rate increase since 1994 after inflation rose 8.6% in May. The European Central Bank is preparing to make its first rate increase in more than a decade in July.
The Bank of England on Thursday raised its key interest rate by a quarter percentage point for the fifth consecutive time. The
increased rates to minus 0.25% from minus 0.75%. Switzerland, like Japan, has seen upward pressure on prices because of a weak currency.
In a policy statement released together with the rate decision, the Bank of Japan said it would pay attention to developments in the foreign-exchange market and the impact on the economy and prices. But it didn’t suggest that a policy change was being considered or express concern about the weak yen.
The Bank of Japan has faced a dilemma recently between keeping interest rates low—which it believes will support the economy—and trying to prevent a sharp depreciation of the yen.
“With today’s decision, the BOJ is simply postponing the problem,” said Naomi Muguruma, an economist at Mitsubishi UFJ Morgan Stanley Securities.
“There is a sufficient possibility that investors will push for further falls in the yen and start attacking the BOJ’s yield curve control policy again after a while,” Ms. Muguruma said, referring to the central bank’s control of interest rates including the yield on the 10-year Japanese government bond.
Speculation had heightened mainly among foreign investors ahead of Friday’s meeting that the BOJ might raise its target range for the 10-year JGB yield. That prompted selling of JGBs and pushed the yield on the benchmark 10-year bond above the bank’s 0.25% ceiling for the first time since January 2016.
The yield hit 0.265% on Friday morning before falling back to 0.25%. This week, the bank has intervened in the market to buy government bonds more aggressively. The BOJ bought ¥10.9 trillion in JGBs this week, equivalent to more than $82 billion, through various market operations.
In Japan, inflation has finally hit the central bank’s 2% target. Overall consumer prices increased 2.5% from a year earlier in April. However, that is mainly due to rising energy prices, and the BOJ thinks such “cost-push” inflation isn’t sustainable so it needs to maintain monetary easing. Excluding fresh food and energy, consumer prices rose 0.8% in April.
Japanese consumers, who haven’t experienced inflation for decades, have resisted higher prices, and, as in other countries, the inflation issue is politically sensitive. BOJ Gov.
recently said that consumers were starting to tolerate higher prices and suggested he approved of the trend. After a backlash, Mr. Kuroda apologized and withdrew the comment.
Write to Megumi Fujikawa at firstname.lastname@example.org
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
The Insidexpress is now on Telegram and Google News. Join us on Telegram and Google News, and stay updated.