Bank of Japan Stands Pat On Rates And Bond Buying, Hitting Yen
The BOJ Friday kept the range for its benchmark rate between 0% and 0.1%, as widely expected by economists.
(Bloomberg) -- The Bank of Japan held interest rates steady and simplified its language on bond-buying, an outcome that prompted the yen to set a fresh 34-year low amid ongoing concerns of possible currency intervention.
The BOJ Friday kept the range for its benchmark rate between 0% and 0.1% at the conclusion of its meeting, according to a statement, as widely expected by economists. The bank said it would buy government bonds in line with its March decision. It dropped a footnote saying it had purchased about 6 trillion yen ($38.5 billion) per month in the past.
It forecast inflation to remain above or around its inflation target through fiscal 2026, adding that if its projections are realized, it will adjust its policy settings.
The stand-pat decision and updated forecasts did little to support the yen. The currency weakened through the 156 mark against the dollar for the first time since 1990. Following the latest move in the yen, Finance Minister Shunichi Suzuki said he would respond firmly to excessive moves in the foreign exchange market, though he declined to characterize the latest movement.
“The BOJ issued no remarks to counter the yen’s weakness, and I think that’s why the yen fell further,” said Takeshi Minami at Norinchukin Research. “Now the BOJ meeting is over, the finance ministry can step in the market anytime, but they may choose to wait until US economic data are out and the Federal Reserve decision is done.”
The Fed’s preferred measure of inflation comes out later Friday and may serve as another catalyst for currency movements. The US central bank decides on policy next week.
Governor Kazuo Ueda faces a dilemma as he plots his policy course. The central bank chief has indicated he’d like to proceed gradually with rate increases after last month ending the negative rate policy with the bank’s first hike since 2007. At the same time he doesn’t want to put too much pressure on a stuttering economy estimated to have shrunk in the first quarter.
The combination has left market players expecting little immediate change, adding to weakening pressure on the yen even after he called time on the central bank’s massive easing program in March. With expectations of a Fed rate cut pushed back in recent weeks, the pressure on the yen looks set to remain.
In addition to the ramped up warnings of Japan’s foreign exchange officials, business leaders have amplified their concerns, implicitly putting pressure on the BOJ not to further fuel losses in a currency that’s already the biggest loser among major currencies this year.
A key focus of this meeting was the BOJ’s stance on bond purchases. Ahead of the meeting, some analysts held the view that a reduction in the volume of buying could be used to signal an hawkish tilt to ease pressure on the yen.
But if market players were looking for a clear indication that bond purchases would be pared back, as suggested by local media reports, they didn’t get one. The BOJ dropped the ¥6 trillion figure and a line suggesting it would continue to buy a broadly similar amount, but added that its stance largely matched its position in March.
Ueda has said that interest rates will be essentially decided by the market after the bank last month ended its yield curve control mechanism.
The central bank also said it expected financial conditions to remain easy for the time being, a key phrase suggesting no looming rate hike. Economists surveyed before the decision saw October as the most likely month for the BOJ’s next rate hike, though a majority also flagged a risk that the bank could move earlier in July.
In its latest quarterly economic report Friday, the bank raised its outlook for consumer prices excluding fresh food to 2.8% from 2.4% previously for the 2024 fiscal year that started this month. The bank said risks are on the upside for inflation in the current fiscal year.
The median projection for fiscal 2026 was 1.9%. That shows the nine-member board expects the period in which the price measure stayed above or around its 2% goal to stretch to five years.
The governor is set to hold a press conference that will likely begin at 3:30 p.m. in Tokyo to elaborate on the thinking behind the decision, the path ahead for interest rates and the inflation outlook.
--With assistance from Yoshiaki Nohara, Erica Yokoyama and Brian Fowler.
(Adds more details from release and comment)
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