The Central Bank of Japan on Thursday reaffirmed their view to keep interest rates very low and at the same time vowed to buy an unlimited amount of bonds to defend its yield target. This has prompted further selling of the yen and an increase in government bonds.
The move reflects the BoJ's determination to support a fragile economy despite a sharp rise in the cost of raw materials that has led to a surge in inflation. The BoJ chose to maintain its ultra -loose monetary policy and pledged to keep interest rates at "current levels or lower."
The BoJ also informed that they will buy unlimited 10 -year government bonds to defend the 0.25%limit. The BOJ’s commitment to its zero -rate program puts it in a different position from other major economies shifting toward tighter monetary policy to combat price surges, although inflation in Japan is expected to rise towards the central bank’s 2% target.
The BOJ’s strengthened commitment to ensuring accommodative policy pushed the yen well below the level of psychological support against the US dollar. Yields on the benchmark Japanese 10 -year government bond slipped to a three -week low of 0.215%.
Kuroda noted that with no change in his view that a weaker yen benefits the Japanese economy, a sign of further depreciation in the currency may not prompt the BOJ to change its ultra-easy policy.
Even so, he warned that excessive market volatility could hurt the economy by making it difficult for firms to set business plans.
As widely expected, the BOJ did not change its -0.1% target for short -term interest rates and pledged to push 10 -year bond yields around 0%.
In a new quarterly forecast, the central bank projects core consumer inflation to hit 1.9% in the current fiscal year before falling to 1.1% in fiscal 2023 and 2024 - as there are indications the inflation surge is temporary.
Core consumer inflation, which hit 0.8% in March, is expected to rise to around 2% from April, which is likely to be driven largely by rising fuel costs.
