The Bank of Japan is largely expected to keep rates steady at the end of the two-day meeting ending June 14, 2024. Here, the Japanese flag flies high at the BOJ's headquarters in Tokyo.
Kazuhiro Nogi | Episode | Getty Images
The Bank of Japan left interest rates unchanged on Friday, but indicated that it was considering interest rates phasing out the purchase of Japanese government bonds.
The central bank left short-term interest rates unchanged at between 0% and 0.1% at the end of its two-day policy meeting, as widely expected.
But noticeably, the bank said in its statement that it may reduce its purchases of Japanese government bonds after the next monetary policy meeting, scheduled for July 30-31.
The decision passed by an 8-1 majority, with board member Nakamura Toyoaki dissenting.
Toyoaki has been in favor of reducing purchases of Japanese government bonds, but believes that the BOJ should only decide to reduce these purchases after a reassessment of developments in economic activity and prices in the July 2024 outlook report, scheduled for July 31.
Ahead of the next meeting, the BOJ said it will collect views from market participants and decide on a detailed purchase price reduction plan over the next one to two years.
Purchases of Japanese government bonds, commercial paper and corporate bonds will also continue, as decided at the March monetary policy meeting.
Following the BOJ's decision, the Japanese yen weakened by 0.52% to 157.84 against the US dollar, while interest rates on 10 years JGB fell by 44 basis points to 0.924.
The benchmark Nikkei 225 rose 0.68%, reversing earlier losses, while the Topix was 0.71% higher.
Bold policy moves
However, the central bank said at the time that this would remain the case are buying JGBs at a rate of about 6 trillion yen ($38.17 billion) per month.
Although the large-scale purchases of Japanese government bonds had the effect of stabilizing 10-year government bond yields at around 1%, this indirectly put additional downward pressure on the weak yen, according to a note from consultancy Teneo published on June 13.
On May 8, BOJ Governor Kazuo Ueda said the central bank will scrutinize the yen's recent declines to guide monetary policy. Reuters reports this.
It came after the yen fell to a 34-year low and was trading at 160 against the dollar in late April, prompting the BOJ to intervene to support the currency.
“Sharp, unilateral falls in the yen are negative for the economy and therefore undesirable” because it makes it difficult for companies to draw up business plans, Ueda told parliament.
“If currency volatility affects or threatens to affect trend inflation, the BOJ should respond with monetary policy,” he added.
