Bank of Japan leaves monetary policy unchanged

Published January 18th, 2023 - 09:20 GMT
Bank of Japan policy
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ALBAWABA — After a two-day meeting, Japan's central bank left its ultra-low monetary policy unchanged on Wednesday, a move that sent the Yen tumbling, despite heavy speculation that it would scrap its yield curve control (YCC) policy.


Defying market expectations, the Bank of Japan (B0J) said it would continue to allow 10-year bond yields to fluctuate by 0.5 percentage points above or below its target yield of 0 percent, while keeping short-term interest rates at -0.1 percent.


The unchanged monetary policy has created ambiguity among market participants as investors were expecting that the BoJ would scuffle the YCC target, as it demands massive bond buying to defending the cap. 


Since its last policy meeting on December 20, the BoJ has spent around ¥34 trillion ($265 billion) on bond purchases, with the yields on 10-year bonds continuing to rise above 0.5 percent, prompting markets to pressure the BoJ to entirely abandon the YCC target.


Benjamin Shatil, a currency strategist at JPMorgan in Tokyo, told the Financial Times it was difficult to interpret the yen’s move as an inflection, with markets assuming that the BoJ would eventually have to relent to pressure.


“In some ways the decision to make no changes today — neither to policy nor to forward guidance — sets the BoJ up for a protracted battle with the market,” Shatil added.


The 10-year yield on Japanese government bond breached the BOJ’s ceiling for fourth straight session after the decision.


“The can has been kicked down the road and the attention will shift to the next meeting,” Moh Siong Sim, currency strategist at Bank of Singapore, told Reuters.


“It’s a question of when not if,” he concluded.


Prices have not neared rising inflationary pressures seen in other developed economies but have steadily risen since the beginning of the year to levels not seen in Japan since the 1980s, and far above the BoJ’s longstanding goal of sustained 2 percent inflation.


BoJ Governor Haruhiko Kuroda, whose term ends in April, has insisted that the rises are largely temporary and linked to exceptional factors such as the war in Ukraine, and the slumping global economy.


"Speculation will remain that it will eventually review its policy," said Takehide Kiuchi, executive economist at Nomura Research Institute and a former BoJ policy board member told Agence France-Presse.


"Market focus will now shift to the appointment of a new governor," Kiuchi added, noting that the bank needs to "make its policy flexible" whoever is appointed.



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