BOJ policy meeting: Japan maintains ultra-easy policies, leaves yield curve targets unchanged


The yen tumbled 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 to move away from low interest rates.

The BOJ kept its yield curve control (YCC) targets unchanged after concluding a two-day policy meeting on Wednesday. It left short rates at an ultra-dovish minus 0.1% and the 10-year Japanese government bond (JGB) yield at 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 decision sent the yen tumbling. Around noon, it briefly fell 2.7% against the US dollar. It later offset some losses, the latter trading 1.3% lower at 129.76 yen per dollar. Last Friday, the currency reached a seven-month high of 127.46 against the dollar.

“The Japanese economy, despite being impacted by factors such as high commodity prices, has strengthened as the resumption of economic activity progresses, while protecting public health from Covid-19,” the central bank said in its quarterly outlook, adding that delays in overseas economies can put downward pressure on growth.

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

“The uncertainty about the Japanese economy is very high. It is necessary to support the economy with our stimulus policies to ensure that companies can raise wages,” Kuroda said in comments published by Reuters. “By pursuing an ultra-easy policy, we aim to achieve our price target stably and sustainably with wage increases.”

Kuroda expects core consumer inflation to fall below 2% by the second half of fiscal 2023.

Kuroda will step down in April after serving a ten-year term.

Last month, the BOJ shocked global markets by allowing the 10-year JGB rate to move 50 basis points on either side of the 0% target. rates continue to rise.

The unexpectedly aggressive move caused stocks to plummet while the yen and bond yields rose.

Kuroda said there is no need to expand the yield range further after the December move.

“It was not so long ago that we adopted our measures in December. It will probably take some time before the measures start to have an effect on the recovery of the market function. However, with our flexible market operations, we expect the market function to improve in the future,” he said, according to Reuters. “YCC is therefore likely sustainable.”