The Bank of Japan (Bank of Japan) announced on Friday that it will maintain monetary easing and ultra-low interest rates despite the yen’s appreciation plunging to 134.04 yen per dollar.
The Bank of Japan announced that it will maintain short-term interest rates at -0.1% while leading 10-year government bond yields to about 0% after the policy meeting ends on Friday, Kyodo News. report.
The bank has also decided to maintain an unlimited fixed rate bond purchase business cap of 0.25%, which currently covers 10-year bonds.
Analysts widely expected this move. The Bank of Japan maintained its reputation that the Japanese economy was affected by the COVID-19 pandemic and rising commodity prices.
“We need to pay close attention to trends in the financial and foreign exchange markets and their impact on Japan’s economic activity and prices,” the bank said.
The Federal Reserve Board raised interest rates by 0.75% on Wednesday. This is the largest increase since 1994 and the third increase this year to counter inflation in the country.
The dollar index, which measures currencies against six peers, including the yen, rose 0.23 percent to 104.12 after falling overnight at 103.41, the lowest since June 10. Before the Federal Reserve’s decision, it was 105.79, 20 years high.
Due to the high volatility immediately after the BOJ’s decision, the greenback rose 1% to 133.63 yen. Initially, the gain was increased to 1.89% to reach 134.64, then temporarily plummeted to 132.42 with two large numbers before jumping to current levels.
Yuichi Kodama, chief economist at the Meiji Yasuda Institute for Life Sciences, said it is unlikely to change policies to address “cost-push inflation,” which the Bank considers temporary. report.
“I’m detained now,” Kodama said. “The depreciation of the yen boosts exports, but hurt personal consumption. Overall, exports play a major role, so from a gross domestic product perspective, the impact may not be that negative.”
Unlike other major central banks that are flagging aggressive rate hikes to deal with inflation, the Bank of Japan is working to ease monetary policy and maintain low interest rates, resulting in a weaker yen. ..
Haruhiko Kuroda, the governor of the Bank of Japan, explained last week that the Japanese economy is still recovering from the recession caused by the COVID-19 pandemic, and that rising commodity prices are putting downward pressure on income.
“In this situation, monetary tightening is not the right option at all. The World Bank’s top priority is to continue its current aggressive monetary easing, centered on controlling the yield curve, thereby ensuring economic activity. “To support,” said Kuroda.
“Unlike other central banks, the World Bank does not face a trade-off between economic stability and price stability, so it is certainly possible for the World Bank to continue to stimulate aggregate demand from the financial side. “He added.
Reuters contributed to this report.