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 central bank's decision to keep interest rates near zero spurred investors to sell the yen and buy the dollar. This is because investors expect interest rate gaps between Japan and the United States to remain wide, making the dollar a more attractive investment.
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 and raised rates for the first time in 17 years in March 2023. This historic shift signaled a move away from the ultra-loose monetary policy that had been in place for 11 years.
The BOJ's quarterly report, released on April 26, 2023, projects that the inflation rate will remain around 2% for the next five years. The report also revised upward its forecasts for fiscal 2024 and 2025, indicating that the "virtuous cycle between wages and prices" is strengthening.
Despite these positive signs, Ueda declined to say when an additional interest rate hike might be expected. 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 taken any action. The last intervention occurred in September 2022, when the yen fell to 145.90 against the dollar.