① The Bank of Japan announced on Friday that it will keep the benchmark interest rate unchanged and said it will continue to buy bonds according to the March plan; ② Previously, due to the weakening of the yen over the past few days, the market expected that although the Bank of Japan would not adjust interest rates, it might reduce debt purchases to emphasize hawkish positions, thereby reducing the pressure on the weakening yen; ③ the market's vague statement about the Bank of Japan is very helpless, and indicates that the yen may continue to depreciate.
AFP, April 26 (Editor: Malan) The Bank of Japan announced in a brief statement on Friday that it will keep the benchmark interest rate unchanged and remain in the 0-0.1% range, which did not exceed economists' previous expectations. Furthermore, the bank has not decided to change its bond purchase plan; it only says it will continue to buy bonds in accordance with the March decision.
After the announcement of the decision, the yen hit a new low, and the exchange rate of the dollar fell below 156 against the yen. This is a low level of about 34 years since May 1990.
Bank of Japan Governor Kazuo Ueda said at a subsequent press conference that if the potential inflation rate is in line with the Bank of Japan's forecast, the bank will adjust the level of monetary easing, but if it is overadjusted, the Bank of Japan may change it.
He added that when measuring inflation, the Bank of Japan will not only focus on a single data, but will comprehensively consider various indicators and economic factors behind price changes.
He stressed that monetary policy does not directly target the exchange rate, but the two are closely related. If the trend of the yen has a significant impact on the economy and prices, it may also become a reason for the Bank of Japan to change its policy.
The Bank of Japan currently expects Japan's inflation rate to remain above or near the bank's target (2%) until the 2026 fiscal year. If the forecast comes true, the Bank of Japan will adjust its monetary policy and thus raise interest rates again.
The yen weakens
The Bank of Japan's simple statement made the market somewhat unhappy. Norinchukin Research analyst Takeshi Minami said that the Bank of Japan did not make clear statements to deal with the weak yen, which led to a further decline in the yen.
He also said that the Bank of Japan's big drama is over, but Japan's Ministry of Finance can intervene in the market at any time. However, he believes that Japan's Ministry of Finance will also wait until the US economic data is released and clearly sees the Federal Reserve's decision before taking action. The PCE Index, the key US inflation indicator, will be released later today.
Japan's Finance Minister Shunichi Suzuki said that if necessary, the Japanese government will make a firm response in the foreign exchange market, but he declined to disclose specific plans.
Some Japanese business people have joined forces to pressure the Bank of Japan not to increase the pressure on the yen. The currency has become the currency that has depreciated the most among major currencies this year.
In addition to the turmoil in the foreign exchange market, the Bank of Japan's ambiguous attitude about the bond purchase plan has also made the market a bit worried. Earlier, many analysts believed that the Bank of Japan might strengthen its hawkish stance by reducing the scale of bond purchases, thereby saving the yen's decline.
However, judging from the Bank of Japan's latest statement, market expectations have fallen short. Shoki Omori, chief strategist at Mizuho Securities, said that the statement made it unclear how the Bank of Japan will buy bonds in the future. However, the Bank of Japan is flexible in scheduling its quarterly bond purchases, although it is unlikely to cut back in May.
According to Omori's analysis, the final conclusion is that the yen will continue to weaken in May.