Bank of Japan sticks to dovish stance as rest of world takes giant hikes

Kiyoshi Ota | Bloomberg | Getty Images

The Bank of Japan left interest rates unchanged on Friday, remaining an outlier against hawkish global peers undertaking giant rate hikes.

The central bank also said it would buy the necessary amounts of Japanese government bonds at a fixed rate to keep 10-year JGB yields around 0%.

The announcement is in line with forecasts by economists in a Reuters poll, who expected no change in central bank monetary policy despite the Japanese currency sitting at its lowest level in 32 years.

“The Bank will support financing, mainly to businesses, and maintain financial market stability, and will not hesitate to take additional easing measures if necessary,” it said in its monetary policy statement.

The japanese yen weakened slightly after the announcement of levels around 146.5 against the US dollar. The 10-year JGB yield was 0.246% below the upper limit of the central bank’s yield target.

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Raises inflation outlook

The Bank of Japan has revised the country’s core consumer inflation projections to 2.9% in the current fiscal year from its previous forecast of 2.3%. It also changed its forecast for core inflation next year to 1.6% from 1.4%.

“There remain extremely high uncertainties for the Japanese economy,” the BOJ said in its statement. “Risks to economic activity are on the downside. Risks to prices are on the upside.”

Officials have remained tight-lipped on reports that Japan carried out a second intervention to defend its currency. Analysts said a unilateral move would likely be limited and the currency could continue to weaken further against the dollar and even hit 170 next year.

Deputy Finance Minister for International Affairs Masato Kanda says US Treasury Secretary Janet Yellen is respecting Japan’s policy of not disclosing whether or not it has carried out any intervention in the foreign exchange market. .

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