JPY: Bank of Japan Maintains Interest Rate and Bond-Buying Programme
The Bank of Japan hold the rates at 0.10% and no changes in the Bonds buying program of JPY 6 Trillion. So JPY pushed down after the no changes made in this meeting. BoJ Board members told outlook of July 2024 report will decided the trim of Bond Buying program schedule. Inflation is moderately higher, private consumption is higher, Automakers struggle in the shipments, So industrial production much more affected.
USDJPY is moving in Ascending channel and market has rebounded from the higher low area of the channel
After concluding its two-day monetary policy review meeting on Friday, the Bank of Japan (BoJ) board members decided to maintain the key interest rate at 0%.
This decision aligned with market expectations.
The BoJ maintained rates for the second consecutive meeting in June, following a hike in March—the first since 2007.
However, the BoJ did not alter its extensive monthly Japanese government bonds (JGB) buying programme, which amounts to JPY6 trillion ($38.14 billion).
Summary of the BoJ Policy Statement:
The BoJ will conduct JGB purchases in accordance with the decision made at the March policy meeting.
The decision on JGB purchases was made by an 8-1 vote.
The BoJ decided to reduce bond buying to allow long-term interest rates to fluctuate more freely.
A specific bond buying reduction plan for the next 1-2 years will be decided at the next policy meeting.
The BoJ will hold a meeting with bond market participants to discuss today’s policy decision.
BoJ board member Nakamura dissented on the decision regarding JGB purchases.
Nakamura believed the bank should decide to reduce JGB purchases after reassessing developments in economic activity and prices in the July 2024 outlook report.
Despite his dissent, Nakamura supported the idea of reducing the BoJ’s purchase amount of JGBs.
Economic Insights:
Uncertainties surrounding domestic economic and financial developments remain high.
Japan’s economy has shown moderate recovery, despite some areas of weakness.
Inflation expectations have risen moderately.
Financial conditions have been accommodative.
Private consumption has remained resilient.
Although private consumption has been strong, the impact of price rises persists, and auto sales continue to be affected.
It is necessary to closely monitor developments in financial and forex markets.
Underlying CPI inflation is expected to rise gradually.
Industrial output has been relatively flat overall.
Industrial output has recently been suppressed by the suspension of production and shipment at some automakers.
JPY: Bank of Japan to Reduce Bond Buying, Maintain Rates
The Bank of Japan (BoJ) decided to keep its benchmark interest rate unchanged at 0.1% and made no changes to its bond-buying program of JPY 6 trillion ($38 billion) per month. Following this decision, the Japanese yen weakened as the market had anticipated potential changes.
GBPJPY is moving in Ascending channel and market has reached higher high area of the channel
BoJ board members indicated that any decision to reduce the bond-buying program would depend on the economic outlook report scheduled for July 2024.
In terms of the broader economic context, inflation in Japan has been moderately higher. Private consumption has shown resilience, contributing positively to the economy. However, automakers have faced challenges in shipments, significantly affecting industrial production.
On Friday, the Bank of Japan (BoJ) decided to start trimming its massive bond purchases and announced it would provide a detailed plan next month on reducing its nearly $5 trillion balance sheet. This decision marks another step towards withdrawing from its extensive monetary stimulus program.
Despite continuing to buy government bonds at the current pace of roughly 6 trillion yen ($38 billion) per month, the BoJ will outline the specifics of its tapering plan for the next one to two years at its July meeting.
“Today’s decision suggests that the BoJ is very careful about reducing the bond buying amounts, which means the central bank is also cautious about raising rates,” said Takayuki Miyajima, senior economist at Sony Financial Group in Tokyo. “It has become less likely that the BoJ will raise rates in July.”
The BoJ plans to gather feedback from market participants before finalizing the long-term tapering plan at its next meeting.
As anticipated, the BoJ maintained its short-term policy rate target in the range of 0-0.1% by a unanimous vote.
The central bank also maintained its view that the economy continues to recover moderately, with consumption holding firm.
Following the announcement, the yield on the benchmark 10-year Japanese government bond (JGB) fell to 0.920%, while the yen hit a one-month low of 157.895 to the dollar.
Markets are now focusing on any hints from Governor Kazuo Ueda regarding the expected pace of future tapering during his post-meeting briefing at 0630 GMT.
In a landmark shift in March, the BoJ exited negative rates and bond yield control, moving away from a decade-long, radical stimulus program. It has also indicated it will keep short-term rates at levels that neither cool nor overheat the economy, which analysts believe to be between 1-2%.
Many market participants expect the BoJ to raise rates again sometime this year, though there is no consensus on the timing.
The central bank is also under pressure to embark on quantitative tightening (QT) and scale back its $5 trillion balance sheet to ensure that future rate hikes effectively impact the economy.
The BoJ’s efforts to normalize monetary policy come as other major central banks, which have already tightened monetary policy aggressively to combat soaring inflation, are beginning to cut rates. The Federal Reserve held interest rates steady on Wednesday and signaled the possibility of a single cut this year. The European Central Bank cut interest rates last week for the first time since 2019.
However, the normalization of Japan’s still-loose monetary policy is clouded by weak consumption and doubts over the BoJ’s view that robust domestic demand will keep inflation on track to durably hit its 2% target.
Receding prospects of steady U.S. interest rate cuts may also keep the yen weak against the dollar, complicating the BoJ’s policy decisions.
Japan’s weakened currency has become a challenge for policymakers by inflating import prices, which in turn increases living costs and hurts consumption. Some analysts see the BoJ’s bond tapering as a tool the central bank can use to slow the yen’s decline by allowing long-term interest rates to rise more freely.
JPY: Bank of Japan to Reduce JGB Purchases, Maintain Interest Rate
The Bank of Japan (BoJ) resolved to maintain its benchmark interest rate at 0.1% and abstained from modifying its substantial bond-purchasing initiative, which entails acquiring JPY 6 trillion ($38 billion) worth of government bonds monthly. Consequently, the Japanese yen depreciated in response to the absence of anticipated policy adjustments.
EURJPY is moving in Ascending channel and market has reached higher high area of the channel
BoJ board members articulated that any potential curtailment of the bond-buying program would be contingent upon the findings of the economic outlook report slated for release in July 2024.
In the broader economic landscape, inflation has experienced a moderate uptick. Private consumption has demonstrated notable robustness, thereby bolstering the economy. However, the automotive sector has encountered significant obstacles in terms of shipments, thereby exerting a deleterious impact on industrial production.
The Bank of Japan (BoJ) kept its benchmark interest rate unchanged on Friday but indicated it is considering reducing its purchases of Japanese government bonds (JGBs).
As expected, the central bank left short-term rates unchanged at between 0% and 0.1% at the end of its two-day policy meeting. However, the BoJ stated it could reduce its JGB purchases after the next monetary policy meeting, scheduled for July 30 and 31.
The decision was passed with an 8-1 majority vote, with board member Nakamura Toyoaki dissenting. While Toyoaki supports reducing JGB purchases, he believes the BoJ should decide on the reduction only after reassessing economic activity and price developments in the July 2024 outlook report, due on July 31.
In preparation for the next meeting, the BoJ will gather feedback from market participants and will decide on a detailed plan for reducing its purchase amount over the next one to two years. The purchases of JGBs, commercial paper, and corporate bonds will continue as decided in the March monetary policy meeting.
Following the BoJ’s decision, the Japanese yen weakened by 0.52% to 157.84 against the U.S. dollar, while the yield on the 10-year JGB fell by 44 basis points to 0.924%. The benchmark Nikkei 225 rose by 0.68%, reversing earlier losses, and the Topix increased by 0.71%.
Bold Policy Moves
In March, the BoJ raised interest rates for the first time in 17 years, ending the world’s last negative rate regime, and scrapped the yield curve control policy in a radical shift. Despite this, the central bank said it would continue purchasing JGBs at a pace of about 6 trillion yen ($38.17 billion) per month.
Although these large-scale purchases have stabilized 10-year JGB yields at around 1%, they have indirectly put additional downward pressure on the weak yen, according to a note by advisory firm Teneo published on June 13.
On May 8, BoJ Governor Kazuo Ueda stated that the central bank would scrutinize the yen’s recent declines in guiding monetary policy, following the yen’s slip to a 34-year low, trading at 160 against the dollar in late April. This prompted the BoJ to intervene to prop up the currency.
“Sharp, one-sided yen falls are negative for the economy and therefore undesirable, as it makes it difficult for companies to set business plans,” Ueda told parliament. “If currency volatility affects, or risks affecting, trend inflation, the BoJ must respond with monetary policy,” he added.
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