Bank of Japan Holds Interest Rates at Historic Lows

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The Bank of Japan reaffirmed its commitment to low interest rates and signaled its intention to continue stimulus measures, despite speculation of an impending departure from its ultra-loose monetary policy.

In a statement released on Friday, the BoJ acknowledged the “extremely high uncertainties” surrounding both domestic and international economies and markets.

Traders in Tokyo anticipated guidance from BoJ governor Kazuo Ueda, who was scheduled to address the press later in the day, shedding light on the central bank’s perspective on the 17 consecutive months of consumer price growth exceeding its 2 percent target.

The BoJ’s decision to maintain its policies, while widely expected, triggered an immediate sell-off of the yen, which quickly depreciated against the dollar, falling just below ¥148 within minutes of the announcement.

As the interest rate discrepancy widens between the hawkish US Federal Reserve and the dovish Japanese central bank, the yen has experienced volatile trading leading up to the decision.

The Fed recently kept its benchmark interest rate at a 22-year high of 5.25-5.5 percent and signaled further increases throughout the year.

The Japanese government may step in if the yen weakens too significantly, particularly if it reaches the ¥150 mark.

Sumitomo Mitsui Banking’s chief foreign exchange strategist, Hirofumi Suzuki, warned that if the yen continues to depreciate, it could approach last year’s low of ¥152.

Despite expectations that the BoJ will not respond to the weakening yen by raising interest rates or implementing new monetary policies, market watchers are curious about the central bank’s approach to the current financial climate.

In addition to its stance on interest rates, the BoJ also maintained its yield curve control policy, ensuring stability for the benchmark 10-year Japanese government bond.

By allowing this policy to remain intact, the BoJ authorized a slight increase in yields, which reached 0.72 percent—its highest level since January 2014—during the current week.

The most recent inflation data, released on Friday, highlights the complexity of the BoJ’s future policy decisions.

While the “core” annual inflation rate, excluding volatile food prices, remained at 3.1 percent in both July and August, the “core-core” index, which excludes energy and fresh food prices, also remained consistent at 4.3 percent during the same period.

The “core-core” index plays a vital role in the central bank’s analysis of underlying inflation trends and informs its monetary policy meetings.

Stefan Angrick, senior economist at Moody’s Analytics, suggests that inflation is expected to decrease gradually as previous producer price increases are passed on to consumers, further complicating the monetary policy landscape.