The Bank of Japan's recent decision to keep its monetary policy unchanged after a two-day meeting on April 26 caused a significant decline in the Japanese currency, pushing it to a 34-year low against the dollar. The central bank plans to maintain the uncollateralized overnight call rate at a range between 0.0 and 0.1 percent, aimed at influencing the money market operations and interbank lending rates.
Investors responded to the Bank of Japan's decision by selling the yen and buying the dollar, as they anticipate that the interest rate differentials between Japan and the United States will persist without narrowing in the near future. During Tokyo's foreign exchange trading session on the same day, the Japanese yen reached 156 yen against the dollar, marking its weakest level since 1990. Following the meeting, BOJ Governor Kazuo Ueda addressed a news conference, stating that the yen's devaluation has not significantly impacted the underlying inflation rate thus far, emphasizing the temporary nature of the effects of a weakened yen.
BOJ Governor Ueda's comments during the news conference led to the yen slipping further against the dollar to 156.80 yen, as he did not issue any clear warnings about the currency's weakening. The central bank's change in monetary policy in March, where it ended its negative interest rate policy and raised rates for the first time in 17 years, signified a shift from its long-held ultra-loose monetary stance. Governor Ueda has hinted at the possibility of another rate hike if there is an increased likelihood of achieving the target inflation rate of 2 percent. The Bank of Japan's quarterly report, released on April 26, forecasts a consistent inflation rate of around 2 percent for five consecutive years up to fiscal 2026, with a projection of a 1.9 percent increase in the consumer price index for that fiscal year. Governor Ueda emphasized the strengthening of the relationship between wages and prices but refrained from specifying a timeline for any future interest rate adjustments, stating that decisions will be made based on a comprehensive analysis of various factors.