The Bank of Japan scrapped its guidance on future interest rate levels and called for a long-term review of its policies while keeping its main stimulus measures unchanged at the first meeting under Governor Kazuo Ueda’s leadership.
(Bloomberg) — The Bank of Japan scrapped its guidance on future interest rate levels and called for a long-term review of its policies while keeping its main stimulus measures unchanged at the first meeting under Governor Kazuo Ueda’s leadership.
The central bank maintained its rock-bottom interest rate and asset purchase settings at the end of a two-day gathering Friday, as expected by almost 90% of economists surveyed by Bloomberg.
The bank adjusted the wording of its forward guidance, ditching its reference to Covid-19 and its expectation that interest rates will stay at current or lower levels. The phrase indicating a clear easing bias has been a fixture in policy statements since October 2019.
At the same time the central bank doubled down on its commitment to continuing with stimulus including its yield curve control program for as long as needed to stably maintain its 2% inflation target.
The yen weakened about 0.7% against the dollar to the 134.90 level, while government bond futures reversed losses to trade higher. Japanese bank shares fell.
“This result certainly fits closer to what the market was expecting in terms of echoing patience and restraint,” said John Bromhead, strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “Today’s meeting will put pressure on dollar-yen shorts, which have been a little crowded.”
Around a quarter of polled economists had seen the BOJ updating its guidance at this meeting while making clear its intention to keep easing.
Ueda’s BOJ will conduct the review of monetary policy over recent decades with an aim to publish the results in a year to a year and a half. The longer time frame comes in sharp contrast with past assessments that were conducted over just a few months and fueled speculation of looming policy change.
Surveyed analysts had seen June as the most likely month for Ueda to call for a review of policy.
The dropped guidance and policy review indicate Ueda’s intention to get the ball rolling under his leadership. Still, the decision to keep all the main levers of policy unchanged meant he spurned the chance to make a regime-change start like his predecessor Haruhiko Kuroda.
–With assistance from Ruth Carson and Cormac Mullen.
(Adds more details from decision)
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