The Bank of Japan is expected to maintain ultra-low interest rates and dovish policy guidance on Thursday, a move that comes hours after its U.S. counterpart’s expected sharp rate hike and could trigger another round of yen selling.
The policy gap between the Bank of Japan (BOJ) and the US Federal Reserve has pushed the yen to a 24-year low, pushing up import costs and helping inflation stay above the BOJ’s 2% target for five consecutive months in August. Read more
Markets are focused on whether BOJ Governor Haruhiko Kuroda will offer stronger warnings of sharp falls in the yen or change his view that the recent surge in cost-driven inflation will be short-lived.
“Consumer price inflation in Japan is accelerating at a faster pace than expected, partly due to the weak yen. It becomes difficult for the BOJ to continue to say that price increases will remain temporary,” said Mari Iwashita, chief economist at Daiwa Securities.
At a two-day policy meeting ending Thursday, the BOJ is expected to keep its short-term rate target at 0.1% and that for 10-year government bonds around 0%. Kuroda will hold a press conference after the meeting.
The BOJ’s decision will come hours after the end of the Fed’s September 20-21 meeting. Market participants expect the US central bank to raise rates by at least 75 basis points.
“Major central banks like the Fed and the Bank of England are poised to continue shrinking their balance sheets. This puts the BOJ’s dovish stance more in the spotlight,” Iwashita said. “I don’t think the dollar uptrend is over.”
The country’s fragile recovery has forced the BOJ to remain an exception among a global wave of central banks tightening monetary policy to fight soaring inflation.
While Kuroda echoed the government’s warning against sharp moves in the yen, he pledged to maintain an ultra-loose monetary policy to support the economy.
At the policy meeting, the BOJ is expected to end a pandemic relief funding program as planned this month and discuss adjustments to a policy guidance that flags the COVID-19 pandemic as the main risk. economic.
But the BOJ is expected to leave key elements of the guidance unchanged that promise to step up stimulus as needed and keep interest rates at “current or lower” levels, sources told Reuters. Read more