The Bank of Japan’s decision to maintain its dovish stance on interest rates led to a sharp decline in the yen, hitting a new 34-year low against the dollar. Despite mounting pressure to tighten its policy and support the weakening currency, the BoJ opted to keep its overnight interest rate near zero.
Governor Kazuo Ueda indicated a gradual approach to raising rates following the central bank’s shift away from ultra-loose monetary policy earlier this year. However, the yen’s depreciation and signals of high interest rates from the US Federal Reserve have complicated the situation.
Investors were keenly watching for any hawkish signals from Ueda regarding future rate hikes to curb the yen’s decline. Instead, the governor emphasized that the weaker yen had no major impact on underlying inflation at the moment.
The Nikkei 225 stock index briefly surged after the announcement, reflecting market expectations. The BoJ forecasted that core-core inflation would remain near its 2 percent target for the next three years, with a willingness to adjust policy if prices rose in line with expectations.
Despite the yen’s weakness fueling inflation expectations, the BoJ’s stance remains focused on maintaining sustainable price levels and supporting economic growth. Analysts anticipate a potential rate hike in October, depending on inflation and wage growth indicators.
Overall, the BoJ’s decision and outlook on monetary policy have left investors and markets on edge, with a keen eye on the impact of the yen’s depreciation on inflation and economic stability.