TOKYO- The Bank of Japan on Wednesday maintained ultra-low interest rates, including its 0.5 percent cap for the 10-year bond yield, defying market expectations it would phase out its massive stimulus program in the wake of rising inflationary pressure.
At a two-day policy meeting, the BOJ kept intact its yield curve control (YCC) targets, set at -0.1 percent for short-term interest rates and around 0 percent for the 10-year yield, by a unanimous vote.
The central bank also made no change to its guidance that allows the 10-year bond yield to move 50 basis points either side of its 0 percent target.
The decision follows the BOJ’s surprise move last month to double the yield band, a tweak that analysts say has failed to correct market distortions caused by its heavy bond buying.
Markets had anticipated a possible change to policy at the meeting. The decision to keep settings unchanged sent the dollar surging nearly 2 percent against the yen, its biggest one-day percentage jump since June 17.
“I rather they abandon, or don’t do anything at all,” said Christopher Wong, currency strategist at OCBC in Singapore.
“With expectations running high, a no move would disappoint JPY bulls and weakness can return. But this is likely to be temporary.”
The market’s focus now shifts to the next meeting in March, which will be the final one Governor Haruhiko Kuroda chairs before his term ends in April, Wong said. – Reuters
