By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) – The Bank of Japan kept interest rates ultra-low on Wednesday, including a cap on bond yields it has been fighting to defend, defying market expectations at It will phase out its massive stimulus program as inflationary pressures mount.
The surprise decision sent the yen lower against other currencies as investors unwound their bets that the central bank would adjust its yield across the board
In a two-day policy meeting, the Bank of Japan kept its yield curve control (YCC) target unchanged, with short-term interest rates set at -0.1% and short-term rates around 0% 10-annual rate of return, unanimously approved.
The central bank has also not changed its allowable 20 year bond yields to move 50 Guidelines*) 0% Basis points on either side of the target.
The Bank of Japan strengthened a key market, signaling its determination to continue defending the cap on its operational tool to more effectively curb rising long-term interest rates. Economist at Totan Research.
“By demonstrating its determination to use market tools more flexibly, the BOJ hopes to signal to markets that it will not make major monetary policy adjustments under Governor Haruhiko Kuroda.”
Haruhiko Kuroda’s second five-year term ends in April.
The decision came after the Bank of Japan unexpectedly doubled its yield band last month, an adjustment analysts said failed to correct market distortions caused by its massive bond purchases.
The dollar rose 2.4% to 131. 41 JPY
20 YEAR YIELD JAPANESE GOVERNMENT BONDS FALL 10.5 basis points to 0.131 %.
Chart: Japan’s core inflation hits 41 yearly high https:/ /www.reuters.com/graphics/JAPAN-ECONOMY/INFLATION/gdpzqqabavw/chart.png
Glooming growth outlook
action in December, the BOJ faces the biggest test of YCC policy since the launch of 2020 as the prospect of higher inflation and rising wages gives traders an excuse to
Haruhiko Kuroda has repeatedly said the BOJ is in no rush to withdraw stimulus, let alone raise interest rates, until wages rise enough to boost household income and
on Wednesday In its quarterly report, the Bank of Japan raised its core consumer inflation forecast for the current fiscal year ending in March to 3.0% in October from 2.9% in February 2018.
It also raised its inflation forecast for the fiscal year ending March 2020 to 1.8% from 1.6% three months ago.
But the fiscal 2020 inflation forecast was left at 1.6%, suggesting the board insisted that prices would have faded as past surges in raw material costs had.
The Bank of Japan also slashed its fiscal 2020 and 2024 economic growth forecast, Fears that slowing global growth will weigh on an export-dependent economy.
Japan’s core consumer inflation has exceeded the Bank of Japan’s 2% target for eight months in a row as companies raise prices to absorb higher raw material costs passed on to the family.
Data released on Friday may show inflation hitting a new high 41 According to a Reuters poll, 12 The year’s high was 4.0% in July, although analysts expect price growth to moderate later this year, reflecting the recent fall in global commodity prices.