Tokyo June 17 2022: The Bank of Japan maintained ultra-low interest rates on Friday and vowed to defend its cap on bond yields with unlimited buying, bucking a global wave of monetary tightening in a show of resolve to focus on supporting a tepid economic recovery.
The yen fell as much as 1.9% and bond yields fell after the decision, which was widely expected but disappointed some market players who speculated the BOJ could give into market forces and tweak its yield cap policy.
However, in a nod to the hit that the yen's recent sharp declines may have on the economy, the BOJ said it must "closely watch" the impact exchange-rate moves could have on the economy.
"Recent rapid falls in the yen heighten uncertainty on the outlook and make it difficult for companies to set business plans. It's therefore negative for the economy and undesirable," BOJ Governor Haruhiko Kuroda told a news conference.
At the two-day policy meeting that ended on Friday, the BOJ maintained its -0.1% target for short-term rates and its pledge to guide the 10-year yield around 0% by an 8-1 vote.
The central bank also stuck to its guidance to keep rates at "present or low" levels, and ramped up a programme to buy an unlimited sum of 10-year government bonds at 0.25%.
"Raising interest rates or tightening monetary policy now would add further downward pressure on an economy that is in the midst of recovering from the COVID-19 pandemic's pain," Kuroda said, brushing aside the chance of a near-term rate hike.
He also said the BOJ won't tolerate a rise in the 10-year yield above its implicit 0.25% cap, and had no plan to increase the upper limit despite pressure from rising global yields.
"There was speculation the BOJ could tweak policy to address currency moves, but the answer from the central bank was no," said Shotaro Kugo, an economist at Daiwa Institute of Research.
Kuroda's remarks highlight the BOJ's position as the world's last major dovish central bank, as its peers aggressively tighten monetary policy to curb surging inflation.