The Bank of Japan held its interest rate settings steady and simplified its language on bond-buying after a two-day meeting that took place after the yen hit a fresh 34-year low this week.
The BOJ Friday kept the range for its benchmark rate between 0% and 0.1% at the conclusion of its meeting, according to a statement, as widely expected by economists. The bank said it would buy government bonds in line with its March decision. It dropped a footnote saying it had purchased about 6 trillion yen ($38.5 billion) per month in the past.
The stand-pat decision and tweaked language on bonds did little to support the yen. The currency weakened through the 156 mark against the dollar for the first time since 1990 following the decision.
Governor Kazuo Ueda faces a dilemma as he plots his policy course. The central bank chief has indicated he’d like to proceed gradually with rate increases after last month ending the negative rate policy with the bank’s first hike since 2007.
At the same time he doesn’t want to put too much pressure on a stuttering economy estimated to have shrunk in the first quarter. The combination has left market players expecting little immediate change, adding to weakening pressure on the yen even after he called time on the central bank’s massive easing program in March.
Japan’s foreign exchange officials have ramped up their warnings above excessive yen weakness, and business leaders have amplified their concerns, implicitly putting pressure on the BOJ not to further fuel losses in a currency that’s already the biggest loser among major currencies this year.
A key focus of this meeting was the BOJ’s stance on bond purchases. Ahead of the meeting, some analysts held the view that a reduction in the volume of buying could be used to signal an incipient hawkish tilt to ease pressure on the yen.
Ueda has said that interest rates will be essentially decided by the market after the bank last month ended its yield curve control mechanism.
In its latest quarterly economic report Friday, the bank raised its outlook for consumer prices excluding fresh food to 2.8% from 2.4% previously for the 2024 fiscal year that started this month. The bank said risks are on the upside for inflation in the current fiscal year.
The median projection for fiscal 2026 was 1.9%. That shows the nine-member board expects the period in which the price measure stayed at or around its 2% goal to stretch to five years.
The governor is set to hold a press conference that will likely begin at 3:30 p.m. in Tokyo to elaborate on the thinking behind the decision, the path ahead for interest rates and the inflation outlook.
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