The Bank of Japan on Wednesday maintained ultra-low interest rates, including a bond yield cap it was struggling to defend, defying market expectations it would phase out its massive stimulus program in the wake of rising inflationary pressure.
The surprise decision sent the yen skidding against other currencies as investors unwound bets they made anticipating the central bank would overhaul its yield control policy.
At a two-day policy meeting, the BOJ kept intact its yield curve control (YCC) targets, set at -0.1% for short-term interest rates and around 0% for the 10-year yield, by a unanimous vote.
Following are excerpts from BOJ Governor Haruhiko Kuroda’s comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
CORE CONSUMER INFLATION
“”We expect core consumer inflation to slow below 2% toward the latter half of fiscal 2023. When looking at trend inflation, we’ll likely see inflation gradually accelerate toward our price target due to improvements in the output gap, rises in medium- and long-term inflation expectations and higher wages. But we have yet to see prospects for inflation to stably and sustainably hit our price target.”
MAINTAINING ULTRA-EASY POLICY
“Uncertainty regarding Japan’s economy is very high. It’s necessary to support the economy with our stimulus policy, to ensure companies can raise wages. By maintaining ultra-easy policy, we will strive to achieve our price target stably and sustainably accompanied by wage hikes.”
ON WIDENING OF THE YIELD BAND
“We don’t need to further expand the band around our yield target….”
“It’s been not long since we decided on our measures in December. It will likely take some more time for the measures to start having an effect in fixing market function. With our flexible market operations, however, we expect market function to improve ahead.”
“YCC is, therefore, likely to be sustainable.”
“Japan’s economy is likely to grow above its potential for three straight years. This means wages and prices will be pushed up by robust demand … On the other hand, the upward pressure from import costs will gradually fade. We’ll have both sides affecting price moves.” (Reporting by Leika Kihara; Editing by Rashmi Aich)