Bank of Japan helps yen to reduce losses
2023.01.18 12:53
Bank of Japan helps yen to reduce losses
By Tiffany Smith
Budrigannews.com – The Bank of Japan maintained its ultra-low interest rates on Wednesday, which resulted in a drop in the yen against major currencies. However, the yen gained some ground against expectations of tighter policy in the coming months.
In December, the central bank shocked the market by raising its cap on the 10-year yield from 0.25% to 0.5 percent. This doubled the range it would allow above or below its zero target. The BOJ’s yield curve control (YCC) policy has been the subject of a lot of speculation ever since.
The BOJ unanimously adopted the two-day policy meeting’s YCC targets, which were set at -0.1% for short-term interest rates and around 0% for the 10-year yield. Additionally, it did not alter its guidance, which allows the 10-year bond yield to fluctuate 50 basis points in relation to its 0% goal.
Although analysts predicted that the BOJ would soon tighten policy, the yen recovered some of its losses overall.
Before losing ground, the dollar gained as much as 2.7% to 131.58 yen. It was last at 129.05 yen, up 0.7 percent.
To 139.62 yen and 159.40 yen, respectively, the euro gained one percent and sterling gained one percent. The Australian dollar rose one percent.
According to Niels Christensen, chief analyst at Nordea, “The BOJ was likely surprised by the reaction to its policy tweak in December, which is likely why they didn’t take new initiatives today.”
Christensen added, “The BOJ’s forecasts are expecting higher inflation, which is why we expect monetary tightening further down the road.” Despite the fact that he stated that a new BOJ governor would likely take office in April, this would likely be the case.
Some investors have been betting that the BOJ will have to change YCC or even get rid of it because they think the central bank can’t keep buying so many bonds to keep the cap in place.
After the decision, Japanese government bond yields fell sharply from the central bank’s 0.5% ceiling on Wednesday, the most in two decades. In the past four sessions, the 10-year yield has repeatedly surpassed the ceiling.[JP/T] Nordea’s Christensen stated, “The downtrend in dollar-yen is still intact.”
Christensen went on to say, “We’ll likely see a lower dollar-yen going forward, but for the time being, we may see some range trading until we get more data on the inflation outlook.”
The, which compares the safe-haven dollar to six other currencies, including the yen, dropped 0.2 percent to 102.15.
Even though consumer price inflation fell to a three-month low and core CPI remained at 6.3%, sterling rose to its highest level in more than a month. The pound was at $1.2366 at the time, up 0.6%.
Ruth Gregory, a senior UK economist at Capital Economics, wrote in a note, “The small fall in CPI inflation… and unchanged core rate… suggests it is too early for the Bank of England to declare victory in its fight against inflation.”
“We doubt the Bank of England will call time on rate hikes because underlying inflation, activity, and wage growth all ended the previous year a little stronger than expected.”
Francois Villeroy de Galhau, a member of the European Central Bank, stated that it was too early to speculate about what the central bank would do at the meeting in March. As a result, the euro gained 0.4% to $1.0829. Tuesday’s media reports suggested that the ECB might slow down its pace of tightening even more in March.
