The Bank of Japan has sparked a sharp slide in the yen doubling down its stance to defend low yield target contrary to other central banks to move to tighten monetary policy.
The central bank said it would buy unlimited amount of bonds at fixed rates every business day to protect a 0.25% ceiling on 10-year government debt yields as part of its stimulus measures.
The bank kept its main yield curve control setting and keeping its asset purchases unchanged, according to a statement on Thursday.
Yen weakened sharply against the dollar after the decision, briefly hitting 129.87 per dollar from around 128.67 immediately beforehand.
Looking ahead, the BOJ also stuck with its view that rates would stay low or go even lower.
Bloomberg consensus now sees the end beyond 130 as almost inevitable with government expected to step up its relief measures due to soaring energy and food prices than intervening in currency market.
“The BOJ wants to make it abundantly clear that it will stick with stimulus and that the yen is not part of its considerations,” said Hiromichi Shirakawa, chief economist at Credit Suisse Securities.
“This also sends a clear message that the bank is not joining the Federal Reserve or the European Central Bank on tightening moves.”
“The BOJ has shown some concern over the rapid fall of the yen, but when it comes to its level, it seems very tolerant,” said Mari Iwashita, chief market economist at Daiwa Securities Co.
“I don’t think the BOJ is thinking 130 against the dollar is going to be some terrible inflection point.”
“Instead of intervening in the currency markets, Japan is more likely to add to its economic support policies,” said Taguchi, adding that gaining support for forex intervention would be very difficult.
“Kishida has already announced additional measures, but depending on how much more the yen weakens Japan could add to its support measures.”