The Japanese currency weakened against the US dollar after the Bank of Japan surprised markets by leaving its yield curve tolerance margin unchanged.

The Japanese Yen weakened as much as 2.7% against the US dollar after the decision was announced and last stood at 130.35, hovering at its strongest level since June 2022.

“We don’t need to further expand the band around our yield target,” Bank of Japan Governor Haruhiko Kuroda said in a briefing, according to a Reuters translation.

“It’s not long since we decided on our measures in December. It will probably take a little longer for the measures to start having an effect on the recovery of market function,” he said.

The central bank left its interest rate unchanged at an ultra-dovish -0.1% – in line with expectations and maintained the same rate it has held since 2016.

The central bank reiterated that it will maintain its easing policy to further support its economy.

“Extremely high uncertainties remain for the Japanese economy,” the Bank of Japan said in a statement.

Kuroda said in his briefing, “By maintaining an ultra-easy policy, we will aim to achieve our price target in a stable and sustainable manner, accompanied by wage increases.”

The decision not to change monetary policy comes after the central bank stunned global markets at its previous meeting by widening its margin of tolerance for the yield on its 10-year Treasury bond from 25 basis points to 50 basis points in December.

Since the move last month, 10-year JGB yields have crossed the upper ceiling several times.

The yield on the 10-year JGB crossed the upper ceiling of its band for the fifth consecutive session on Wednesday morning before falling as low as 0.385%.

Yujiro Goto, Nomura’s head of FX strategy, said that while the move would be disappointing for traders bullish on the Japanese yen, the currency’s weakening may be temporary.

“I think the first reaction [for the yen reaching] 130 to 131, or possibly 132 is a knee-jerk reaction after the ‘no change’ today,” he said on CNBC’s “Street Signs Asia.”

“In the medium term, over the next 2-3 months, I think the trend for the yen will still be down towards 125 even after today’s disappointment,” he said,

Goto said the coin will strengthen in hopes of a policy change in the near future, pointing to the approaching end of BOJ Governor Haruhiko Kuroda’s term.

“Markets should continue to expect [the BOJ] tweak or change [its] monetary policy beyond a certain point, especially after Kuroda’s retirement,” he said.

Oxford Economics’ Shigeto Nagai said the BOJ’s decision to broaden its band “fueled” expectations for more changes ahead.

“Today, the BOJ really wanted to calm that speculation and anticipation of normalization,” he said, adding that the central bank will continue to push for change.

As inflation continues to rise in Japan, the central bank will face further pressure ahead of its 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 risks falling into the same trap as the US Federal Reserve in labeling of inflation as “transient”.

The Bank of Japan used wording similar to the Fed’s description of inflation before the U.S. central bank began continuously raising rates to contain rising prices, describing it as “pass-through”.

“The year-on-year rate of increase in the consumer price index is likely to be relatively high in the near term due to the pass-through of cost increases resulting from an increase in import prices into consumer prices,” the statement said. The central bank reports this in its latest Outlook report.

The Bank of Japan has revised its inflation forecasts for the current fiscal year ending March 2023 to 3%. National inflation figures are expected on Friday.