The Bank of Japan (BOJ) signaled its preparedness to raise borrowing costs later this year by maintaining interest rates at zero and highlighting a growing conviction that inflation was on pace to achieve two percent permanently in the upcoming years.
However, a broad-based loss in the yen led to unclear signals about the future course of rate hikes, which caused the currency to drop to a new 34-year low past 156 to the dollar and kept markets on edge over the possibility of currency intervention.
Moreover, the central bank dispelled traders’ hopes that it would soon reduce purchases in part to halt the yen’s losses by sticking to its March instruction to maintain buying government bonds at the present pace.
“The bank’s lack of guidance on currency is a disappointment,” senior FX strategist Rodrigo Catril of National Australia Bank in Sydney stated.
“In my opinion, the currency market is expressing its belief that the Bank of Japan’s policy is excessively lax, which is why the yen depreciates. The Bank may address it by altering its policies, and if it chooses not to do so, we shouldn’t anticipate a strengthening of the yen.
The BOJ kept its short-term interest rate goal, established just one month ago when it made a historic exit from its enormous stimulus program, at a range of 0-0.1 percent, as was generally anticipated.
The BOJ stated in its quarterly outlook report that trend inflation was anticipated to rise gradually as wages and prices continue to rise, reflecting its increased confidence in stably reaching its price target.
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