Japan Central Bank adjusts monetary policy

According to data coming from AFP cited by Ahram Online, the change marks a shift for the central bank, which has largely left its policy intact even as counterparts in other major economies hike rates to tackle inflation.

After a two-day policy meeting, the bank said it would widen the band in which it would allow rates for 10-year Japan government bonds to move, saying it would improve market functioning. In an official statement, central bank officials have stated that the bank will expand the range of 10-year JGB yield fluctuations from the target level: from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points.

Strengthening of the yen against the dollar

The move saw the yen strengthen rapidly against the dollar, with the greenback falling from a daily high of JPY 137 to 133 within minutes of the decision. The announcement came during the morning break in Tokyo trade, but the key Nikkei 225 index plunged as it reopened, falling as much as three percent before recovering slightly.

The bank left the rest of its longstanding loose monetary programme intact, including its years-old inflation target of 2%.

Governor Haruhiko Kuroda, reportedly considers the increases temporary, citing a lack of strong demand and wage rises. Speaking to reporters on Tuesday afternoon, Kuroda insisted the shift ‘is not the first step of an exit strategy’. ‘Once the price stability target draws closer, the monetary policy board will discuss strategies toward the exit and will make information public accordingly,’ he said according to AFP.

Still, the Bank of Japan has come under pressure to move away from its ultra-loose policy as central banks in other major economies hike interest rates to tackle inflation. The resulting differential has seen the yen nosedive about 20% against the dollar this year.

Saisuke Sakai, chief economist of Mizuho Research & Technologies, said the move would help address the weaker yen caused by the growing gulf between US and Japanese central bank policy. But ‘unlike rate hikes by the Fed and European central banks aimed at cooling down overheated economies... this is aimed chiefly at stabilising market function,’ he told AFP. ‘Japan's economy has not recovered to the pre-pandemic level yet, in contrast to the US economy,’ Sakai noted.