Yen Falls Further After Bank of Japan No Change to Monetary Policy or Forward Guidance

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 unanimously. Previously the BoJ adjusted the settings by shifting the hard ceiling from 0.50% to 1.00% in the yield curve control band of +/- 0.50%. The yen weakened, move higher for yen crosses. USD/JPY moved to fresh highs of 148.38 after Governor Ueda press conference where he said “I said that we need to patiently continue easy policy”.

BOJ July 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%.
  • Maintains offer to buy 10-year JGB at 1.0% daily through fixed-rate market operations
  • Makes no change to forward guidance
  • Japan’s economy recovering moderately
  • Japan’s economy likely to continue moderate recovery
  • Inflation expectations showing renewed signs of accelerating
  • Must watch financial and forex market moves and impact on Japan’s economic activity, prices

BOJ governor Ueda conference (Updated):

  • We are yet to foresee inflation reaching 2% in a stable manner
  • Japan economy is recovering moderately
  • Wages and price setting behavior has been more positive recently
  • (clarifies about interview here) I said that we need to patiently continue easy policy
  • We could consider ending yield curve control and modify negative interest rate policy
  • But only when we judge that achievement of 2% inflation is in sight
  • We are not in a situation now to decide on the order of change in policy tools
  • One of the most important factors to judge prices is strength of wage growth

Conduct of yield curve control

While significantly increasing the amount of JGB purchases, the Bank expanded 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