Bank of Japan Maintains Monetary Policy, Yen Hits 34-Year Low
The Bank of Japan (BOJ) decided to maintain its current monetary policy after a two-day meeting on April 26, 2023. This decision sent the Japanese yen to a fresh low of 156 yen against the dollar, its weakest level since 1990.
The BOJ's decision to keep interest rates near zero spurred investors to sell the yen and buy the dollar. This is because investors expect that the interest rate gap between Japan and the United States will remain wide for the foreseeable future.
BOJ Governor Kazuo Ueda acknowledged the yen's depreciation but stated that it has not significantly impacted the underlying inflation rate. He added that the central bank will continue to monitor the situation and consider a change in monetary policy if necessary.
The BOJ's decision to maintain its current policy comes after it ended its negative interest rate policy in March 2023 and raised rates for the first time in 17 years. The central bank has indicated that it may consider an additional rate hike if the probability of achieving its 2% inflation target increases.
The BOJ's quarterly report, released on April 26, 2023, projects that the inflation rate will be around 2% for five consecutive years through fiscal 2026. The report also revised up the inflation forecasts for fiscal 2024 and fiscal 2025.
Governor Ueda acknowledged the strengthening "virtuous cycle between wages and prices" but declined to specify when an additional interest rate hike might occur. He emphasized that the BOJ will make a comprehensive decision based on various factors.
In recent weeks, there has been speculation about a possible foreign exchange market intervention to support the yen. However, the BOJ has not yet indicated any plans to intervene.