The Bank of Japan (BoJ) concluded a two-day policy meeting today and in a unanimous decision, maintained interest rates at 0.25%. The decision was widely expected but the Yen has posted sharp gains.
The BoJ released updated growth and inflation reports, but these didn’t provide any insights into future rate moves. The central bank made only minor revisions to the growth and inflation outlooks, while the BoJ statement said that inflation risks remain on the upside and the moves towards policy normalization will continue if inflation is in line with its outlook.
Governor Ueda reiterated this point in his press conference, saying that “inflation was moving in line with our forecasts” but added that he had no “preset idea” as to the timing of the next rate hike. Ueda said that the BoJ would make its rate decision based on the data available. The markets aren’t expecting the BoJ to raise rates until early 2025.
Yen Jumps on Ueda’s Comments
Ueda sent the Yen soaring after he said that the currency markets have had a significant impact on Japan’s economy. The markets took this as a signal for a possible rate hike in order to boost the Yen. The currency hit a three-month low against the US Dollar after the election results and has had a miserable October, sliding 6.1%.
The BoJ meeting comes at a time of heightened uncertainty. Japan is in a political crisis after the ruling Liberal Democratic Party lost its majority in the general election on Sunday. Prime Minister Shigeru Ishiba has only been in office for a month and it’s unclear if he will be able to form a government. The US election, which has the presidential candidates in a dead heat, has added to the uncertainty.
The Yen weakened to a three-month low after the election but that wasn’t enough to prod the BoJ to raise interest rates on Thursday. The BoJ has said in the past that it would not make any rate moves during times of uncertainty, and between the political crisis in Japan and the tight election campaign in the US, BoJ policymakers had no appetite to make any dramatic rate moves at today’s meeting.
Japanese Yen Jumps, Stock Market Falls after BoJ Decision
The Japanese yen has reacted very favorably to the BoJ rate decision. The USD/JPY currency pair declined as much as 0.90% earlier, falling as low as 151.92 before paring some of these gains. Currently, USD/JPY is trading at 152.47, down 0.62% on the day.
The main Japanese stock index, the Nikkei 225, posted losses today. The index declined 196 points (0.50%) to close at 39,081.
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