Dollar Yen Soars After Bank of Japan Keeps Monetary Policy Steady, No Change to JGB Yield Band

The Bank of Japan as widely expected kept unchanged its -0.1% target for short-term interest rates, and 0% for the 10-year government bond yield. There was much anticipation after last month the market was shocked with BOJ Gov. Haruhiko Kuroda adjusting the central bank’s yield curve control program. The BoJ announced no change to the Yield Band (YCC) and said the decision on the was YCC by a unanimous vote. The bank left forward guidance on th rate on hold. The USDJPY rose 200 pips on the no change announcement.

Last meeting the Bank of Japan announced they would review its operation of yield curve control. The BoJ expanded the band around its 10-year yield target to 0.5% above and below (from 0.25). They will increase bond purchases to JPY 9 tln a month in Q1

The move followed the Federal Reserve raising rates 50bps last week, which increased the interest rate differential between the U.S, and Japan. The YCC surprise partially addressed the positioning there in the forwards.

BOJ January 2023 Monetary Policy Decision Statement

BOJ Monetary Policy Highlights

  • Bank of Japan short-term interest target kept at -0.1%
  • 10-year JGB yield target remains around 0%
  • The BOJ yield curve control program unchanged to allow for 10-year bond yields to target a band in and around 0.50%.
  • Yield curve control (a unanimous vote)
  • Markets expected the no change move, at least until Kuroda’s term is up next year.
  • BoJ bond purchases to JPY 9 tln a month in Q1
  • No change to yield targets.
  • Decided to extend by one year fund operation to support financial institutions’ lending
  • No change to forward guidance on interest rates
  • Decided to enhance fund supply operation against pooled collateral.
  • Maintains guidance that it will continue large-scale JGB buying, make nimble responses for each maturity

Governor Kuroda’s decade-long term will be up in April and a successor is expected to be announced early next year. That coincides with annual Spring labor-management wage negotiations that may finally deliver the missing ingredient to durable achieving the BoJ’s 2% inflation target.

USDJPY Jumps on BOJ Announcement


  • core-core cpi median forecast for fiscal 2023 at +1.8%vs +1.6% in October
  • core-core cpi median forecast for fiscal 2024 at +1.6% vs +1.6% in October
  • real GDP median forecast for fiscal 2023 at +1.7% vs +1.9 % in October
  • real GDP median forecast for fiscal 2024 at +1.1% vs +1.5% in October


  • Japan’s economy likely to recover with easing of impact from coronavirus pandemic, supply constraints
  • Price growth expected to narrow towards the middle of next fiscal year
  • Prices to deviate upward in fiscal 2024
  • Uncertainty over Japanese economy extremely high
  • Need to pay close attention to effects of financial, currency market movements on japan’s economy and prices
  • Price outlook skewed to upside
  • inflation expection is on the rise
  • heightening of price growth is likely to sustainable price increase involving wage hikes
  • there’s a risk global economy could deviate downward due to capital outflow from emerging markets and tightening of global financial conditions
  • prices could deviate downwardly as wage hikes won’t strengthen as expected
  • need to pay close attention to impact of elevated global inflation, rapid currency fluctuations on Japan’s prices
  • it takes time but prices will gradually rise towards inflation target on the back of rises in inflation expectations and wage rises

Inflation is running at nearly double the BoJ’s 2% inflation target. The annual inflation rate in Japan edged up to 3.8% in November 2022 from 3.7% a month earlier, pointing to the highest reading since January 1991, amid high prices of imported raw commodities and persistent yen weakness.

Conduct of yield curve control

While significantly increasing the amount of JGB purchases, the Bank will expand the range of 10-year JGB yield fluctuations from the target level: from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points.

The Bank will offer to purchase 10-year JGBs at 0.5 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted. In order to encourage the formation of a yield curve that is consistent with the above guideline for market operations, the Bank will make nimble responses for each maturity by increasing the amount of JGB purchases even more and conducting fixed rate purchase operations.

Source: BoJ

From The Traders Community News Desk