BOJ Stands Pat on Stimulus, Fueling Pressure on Weak Yen

The BOJ kept its negative interest rate and the parameters of its yield curve control program intact in an outcome predicted by all 46 economists surveyed by Bloomberg. It also maintained a pledge to add to its stimulus without hesitation if needed, a vow that offers yen bears a reason to keep betting against it.

The Federal Reserve’s decision this week to hold rates and telegraph the likelihood of one more rate hike pushed the Japanese currency to a fresh 10-month low of 148.46 against the dollar. The large gap between rates in Japan and the US is one of the main factors driving the yen down against the dollar.The currency is now beyond the levels that prompted Japan to intervene in foreign-exchange markets a year ago to the day.

Ueda kindled expectations earlier this month about an end to the world’s last negative policy rate when he said the chances “aren’t zero” that the BOJ might be able to confirm a virtuous wage-inflation cycle by year-end, a prerequisite for a rate hike. Ditching the pledge might have offered the yen some support, but the central bank is also likely wanting to avoid giving any impression it is now simply responding to market moves.

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