Bank of Japan holds firm as expected, yen fluctuates sharply

The Bank of Japan kept interest rates unchanged at the end of a two-day policy meeting while simplifying bond purchases and policy language, pushing the yen to a 34-year low.

The Bank of Japan kept interest rates unchanged at the end of a two-day policy meeting. It also simplified bond purchases and policy language, pushing the yen to a 34-year low.
The Bank of Japan issued a concise statement on Friday. In just a few words, it announced that it would maintain the benchmark interest rate range at 0%-0.1%. It was in line with the consensus expectations of economists.
The bank did not send a signal to reduce bond purchases. Instead, it said it would purchase bonds in accordance with its decision in March.
Looking ahead. The bank predicts that inflation will remain above or near the 2% target until fiscal 2026. The inflation rate is expected to be 2.8% this fiscal year.
The bank said it would adjust policy if the forecast is realized, emphasizing its view that it is on track to raise interest rates again.
The decision to stay on hold and the latest economic forecasts did not bring much support to the yen.
The yen fell below the 156 mark against the dollar for the first time since 1990.
Governor Kazuo Ueda said at a press conference after the meeting that although the exchange rate may be an important factor affecting inflation, the weakness of the yen has not yet had a significant impact on underlying price trends.
After Kazuo Ueda made this statement, the yen fell to an intraday low of 156.82 against the US dollar.
After that, the Japanese yen fluctuated sharply. It once turned from falling to rising. It briefly jumped to 154.99.
Investors are on high alert for any possible rapid rebound in the yen.
They are also concerned that Japanese authorities may not confirm intervention. Some cases of extreme rallies in the past have been attributed to algorithmic trading.
Currency Concerns The Fed’s preferred inflation indicator will be released later on Friday. It may become another catalyst affecting the trend of the yen against the dollar.
The Federal Reserve will also hold an interest rate meeting next week.
In terms of planning policy lines, Ueda Kazuo faced a dilemma.
After ending the negative interest rate policy last month and raising interest rates for the first time since 2007, he expressed his hope to gradually advance interest rate increases.
At the same time, he does not want to put too much pressure on the economy. Japan\’s economy is expected to have contracted in the first quarter.
This has led market participants to expect no changes in policy in the short term. This has increased pressure on the yen to weaken.
Japanese foreign exchange officials have stepped up their warnings about the yen\’s excessive weakness. Business leaders have also expressed deeper concerns and are implicitly putting pressure on the Bank of Japan not to further contribute to the yen\’s decline.
The yen\’s performance this year has been the worst among major currencies.
One focus of this meeting is the Bank of Japan’s stance on bond purchases.
Before the meeting, some analysts believed that reducing bond purchases could be used as a signal to release a hawkish bias to relieve pressure on the yen.
However, market participants did not see clear signs that the central bank would reduce the scale of bond purchases as reported by local media.
The Bank of Japan dropped the 6 trillion yen figure. It removed language that it would continue buying roughly the same amount of bonds. But added that its stance was essentially the same as in March.
After the Bank of Japan ended its yield curve control policy last month, Kazuo Ueda said that interest rate levels will fundamentally be determined by the market.

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