Noha Makram-Live- The Bank of Japan kept interest rates very accommodative on Friday and pledged to continue supporting the economy until inflation sustainably reaches its 2% target, indicating that it is in no rush to end its massive stimulus programme.
Markets are focusing on the statements of Kazuo Ueda, Governor of the Bank of Japan, searching for hints about the timing of starting to raise interest rates from negative territory.
The yen fell after the decision to about 148.09 to the dollar, that is, near the important psychological level of 150, which represents the maximum limit for the authorities’ intervention in the currency.
Daisaku Ueno, chief currency strategist at Mitsubishi Morgan Stanley Securities, said the decision reflects policymakers’ lack of confidence that wage growth will gain enough momentum to bring inflation to its target.
The Bank of Japan kept interest rates at 0.1%, as widely expected, with a target of 10-year government bond yields at around 0%.
The Japanese central bank’s decision contradicted the decision of both the US central bank and the European central banks, which indicated in their recent meetings their intention to keep interest rates high to curb inflation.
The Japanese Central Bank did not make any change in its directives, as it maintained its pledge to take additional facilitative measures without hesitation.
Although the Japanese Central Bank has maintained its policy, analysts are preparing for a policy shift in the near term amid signs of expanding inflationary pressures in the world’s third largest economy.
Data released earlier today showed that Japanese core inflation recorded 3.1% in August, remaining above the central bank’s target of 2% for the seventeenth month in a row.
The Central Bank Governor had stated that by the end of the year he may have sufficient evidence to determine whether to end negative interest rates or not, which strengthened market expectations regarding a policy shift in the near term.
Takumi Tsunoda, chief economist at the Shinkin Institute for Central Bank Research, said the Bank of Japan is trying to prepare markets for future policy changes, as it wants to adjust the monetary policy framework that was designed to overcome deflation.
A September Reuters poll showed that most economists expect the end of negative interest rates in 2024.
The prospect of raising interest rates helped push 10-year Japanese government bond yields to a new record high in the decade yesterday, Thursday.
2023-09-22 06:49:21
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