BoJ leaves rates and yield curve control mechanism unchanged

Today’s Bank of Japan decision was watched closely as it was the first meeting under new BoJ Governor Ueda and some investors hoped that a slight hawkish turn may be made. However, no such thing occurred and main settings of monetary policy were left unchanged as expected:

• 10-year yield target left unchanged at ‘around 0%’
• Tolerance band around 10-year yield target was left unchanged at +- 0.5%
• BoJ will conduct policy review but it will last 1-1.5 years
• Policy is expected to remain accommodative
• Core inflation in fiscal-2023 is seen at 2.5%, up from previous forecast of 1.8%
• Inflation in 2024 seen at 1.7% (previous 1.6%)
• Inflation in 2025 seen at 1.8% (unchanged)
• Upward inflation pressure in 2023 but downward in 2025
• Line calling for rates to remain at current or lower levels has been removed from the statement

BoJ decision was very dovish but at the same time it suggests that some changes to BoJ policy may be coming. Nevertheless, length of the review suggest that we may have to wait for them quite a bit. USDJPY spiked today, driven by both – USD strength and JPY weakness. However, one should keep in mind that Fed meets to decide on rates next week and the pair may once again experience elevated volatility.

Source: xStation5