The Bank of Japan is widely expected to keep interest rates unchanged at the end of its two-day meeting until June 14, 2024. Pictured is the Japanese flag flying high at the bank’s headquarters in Tokyo.
Kazuhiro Nogi | AFP | Getty Images
The Bank of Japan kept its policy interest rate unchanged on Friday but signaled it was considering reducing its bond purchases.
The central bank left short-term interest rates unchanged at 0% to 0.1% at the end of a two-day policy meeting, as widely expected.
Notably, however, the Bank of Japan said in a statement that it may reduce its purchases of Japanese government bonds after its next monetary policy meeting, scheduled for July 30th and 31st.
The decision was passed by a majority vote of 8 in favor and 1 against, although board member Toyoaki Nakamura opposed it.
Governor Toyoaki is in favor of reducing the amount of government bond purchases, but believes that a decision on the reduction should be made only after reevaluating the economic and price situation in the July 2024 outlook report, scheduled for July 31.
Ahead of its next meeting, the Bank of Japan said it would hear opinions from market participants and decide on a concrete plan for reducing purchases over the next one to two years.
Purchases of government bonds, commercial paper, and corporate bonds will also continue as decided at the March monetary policy meeting.
Following the BOJ’s decision, the Japanese yen fell 0.52% against the US dollar to 157.84 yen, while the yield on the 10-year government bond fell 44 basis points to 0.924 yen.
The benchmark Nikkei Stock Average rose 0.68%, reversing a loss from the previous day, while the Topix rose 0.71%.
In March, the Bank of Japan raised interest rates for the first time in 17 years, ending the world’s last negative interest rate regime and abolishing its yield curve control policy in a radical policy move.
However, the central bank at that time Purchase government bonds at a pace of about 6 trillion yen ($38.17 billion) per month.
The large-scale purchases of government bonds had the effect of stabilizing 10-year government bond yields at around 1%, but indirectly put further downward pressure on the yen, according to a report released June 13 by investment advisory firm Teneo.
On May 8, Bank of Japan Governor Kazuo Ueda said the central bank would examine the yen’s recent depreciation in guiding monetary policy. Reuters reported.
This came after the yen fell to a 34-year low of 160 yen to the dollar in late April, prompting the Bank of Japan to intervene to support the currency.
“A sudden and unilateral depreciation of the yen is negative for the economy and undesirable,” Ueda said in the Diet, adding that it would make it difficult for companies to make business plans.
“If currency fluctuations affect or there is a risk of affecting inflation trends, the Bank of Japan must respond with monetary policy,” he added.
