TOKYO, Jan 18 (Reuters) – The Bank of Japan on Thursday defied market expectations that it would phase out a massive stimulus package amid rising inflationary pressures, boosting struggling bond yields. Maintained ultra-low interest rates, including the upper limit. .
The unexpected decision unleashed a bet investors had made in hopes that the central bank would overhaul its yield management policy, causing the yen to slide against other currencies.
At the two-day policy meeting, the Bank of Japan unanimously stuck to its Yield Curve Control (YCC) target of -0.1% for short-term rates and around 0% for 10-year yields.
The central bank also made no changes to its guidance allowing 10-year government bond yields to move 50 basis points either side of the 0% target.
As a sign of its determination to continue adhering to the upper limit, the Bank of Japan Key market manipulation tools It will more effectively curb the rise in long-term interest rates.
Izuru Kato, chief economist at Totan Research, said: “Higher yield spreads and the dismantling of YCC will make the BOJ even more vulnerable to market attacks.”
“By demonstrating its determination to use market tools more flexibly, the BOJ wanted to send a signal to markets that it would not make major monetary policy changes under Governor Haruhiko Kuroda.”
Kuroda’s second five-year term ends in April.
The decision follows an unexpected move by the Bank of Japan last month The tweak failed to correct market distortions caused by heavy bond purchases, analysts said, doubling the yield band.
Dollar rises 2.4% to ¥131.20 on Bank of Japan announcement
The 10-year Japanese government bond yield fell 10.5 basis points to 0.395%.
Slowing growth prospects
Since the December measures, the BOJ has faced the biggest test for the YCC policy introduced in 2016. Rising inflation and the prospect of rising wages gave traders an excuse to attack central bank yield caps with aggressive bond selling.
Kuroda has repeatedly said the BOJ is in no rush to roll back its stimulus until wages rise enough to boost household incomes and consumption, allowing businesses to raise prices. rice field.
In its quarterly report released Wednesday, the Bank of Japan raised its core consumer inflation forecast for the current fiscal year ending March to 3.0% from 2.9% forecast in October.
We have also raised our inflation forecast for the fiscal year ending March 2024 to 1.8% from 1.6% three months ago.
However, the inflation forecast for fiscal 2023 remained at 1.6%.
The BOJ also sharply lowered its economic growth forecasts for 2023 and 2024.
Japan’s core consumer price index has outperformed the Bank of Japan’s target of 2% for the eighth straight month as firms raise prices to pass on higher raw material costs to households.
Inflation likely hit a 41-year high of 4.0% in December, according to data due Friday, according to a Reuters poll, but analysts said recent global commodity We expect price growth to slow in the second half of the year, reflecting lower prices.
Reported by Reika Kihara and Tetsushi Kajimoto. Additional reporting by Kantaro Komiya and Daniel Roisink.Editing by Bradley Perrette and Sam Holmes
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