BOJ doubles down on super-easy policy stance; yen slides, bonds rally

Tokyo, April 28 (BNA): The Bank of Japan on Thursday doubled down on its commitment to maintain its massive stimulus program and pledge to keep interest rates very low, prompting fresh selling of the yen and sending in government bonds. crowd.

Reinforcing its determination to support the fragile economy even as a sharp rise in raw material costs drive up inflation, the Bank of Japan also said it would offer to buy unlimited amounts of 10-year government bonds to defend an implied ceiling of 0.25% around its zero target in each market. Today, Reuters reports.

The BoJ’s commitment to its zero rate program puts it at odds with major economies moving toward tighter monetary policy, although inflation in Japan is expected to creep toward the central bank’s 2% target.

“The main announcement is the commitment to conduct fixed-rate operations every day,” said Bart Wakabayashi, co-branch manager at State Street in Tokyo.

“I think they’re trying to make the point here that we’re ready to act at any moment. They’ve cut their commitment to that four times.”

The doubling of the Bank of Japan’s commitment to maintain its policy of accommodation sent the yen to a two-decade low against the US dollar, while Japanese government bonds rose.

As was widely expected, the Bank of Japan left its -0.1% target for short-term interest rates unchanged and pledged to guide the 10-year bond yield around 0%.

“The Bank of Japan expects short- and long-term interest rates to remain at their current or low levels,” the bank said in a statement, leaving the pessimistic guidance for the previous meeting in March unchanged.

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In a new quarterly forecast, the central bank forecast core consumer inflation to reach 1.9% in the current fiscal year before tapering back to 1.1% in fiscal years 2023 and 2024 — a sign that it sees current cost prices temporarily rising.

“Risks to prices tend to be bullish at the moment, mainly reflecting uncertainty over energy prices, but are generally balanced thereafter,” the Bank of Japan said in its quarterly outlook report.

Speculation was rife that the Bank of Japan might allow long-term rates to rise further or adjust its pessimistic policy guidance to combat the yen’s declines, as some lawmakers fear that further declines in the currency could hurt the economy through inflating import costs.

Markets are focusing on Governor Haruhiko Kuroda’s remarks at his post-meeting briefing for clues on whether and when the BoJ can adjust its cautious policy guidance.

Japan’s economic growth likely stalled in the first quarter and is expected to rebound only modestly in April and June, as pandemic caution and rising costs of living hurt consumption.

Core consumer inflation, which hit 0.8% in March, is set to accelerate to about 2% from April, although the rise will be driven largely by higher fuel costs and the effect of dissipating previous mobile phone fee cuts – rather than higher wages, or demand basic.

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