The Japanese yen depreciated by 1.3% against the US dollar on Tuesday, and JGB futures surged following the Bank of Japan’s (BOJ) decision to maintain its unchanged policy and reaffirm its commitment to persistent easing. On the other hand, the Nikkei rose 1.4% in response to the much-anticipated BOJ monetary policy decision, with yields on the 10-year Japanese government bond slumping to 0.622%.
Japanese stocks rise, yen falls as BOJ reaffirms ultra-easy policy
In a unanimous decision, the central bank opted to keep interest rates at -0.1% while adhering to its yield curve policy, referencing the 1% upper limit for 10-year Japanese government bonds. It reaffirmed its view that the economic uncertainty is “extremely high,” and it is committed to taking “additional easing steps if necessary.”
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BOJ Governor Kazuo Ueda highlighted the need for closer examination to determine if a “positive” wage-inflation cycle is taking shape while expressing that a potential decline in real wages would not hinder monetary policy normalisation if wages were expected to rise. However, Ueda made it clear that this could only happen if wage increases are coupled with a slowdown in consumer inflation that could still turn real wages positive.
Ueda stated:
The chance of trend inflation accelerating towards our price target is gradually heightening. But we still need to scrutinise whether a positive wage-inflation cycle will fall in place.
Earlier this month, the yen rallied on Ueda’s remarks that fuelled speculation about a shift in monetary policy. So far, the BOJ has been prudent in scaling back its longstanding ultra-loose monetary stance, exercising caution to avoid jeopardising recent, albeit early, improvements.
