In This Article:
(Corrects fiscal year in paragraph 17 to March 2025 (not 2024))
*
BOJ keeps interest rate targets, yield band intact
*
BOJ ramps up market operation tool, signal status quo on YCC
*
Board raises inflation forecasts but cuts growth projections
By Leika Kihara and Tetsushi Kajimoto
TOKYO, Jan 18 (Reuters) - The Bank of Japan on Wednesday maintained ultra-low interest rates, including a bond yield cap it was struggling to defend, defying market expectations it would phase out its massive stimulus programme amid mounting inflationary pressure.
The surprise decision sent the yen skidding against other currencies and bond yields tumbling the most in decades, as investors unwound bets they made anticipating the central bank would overhaul its yield control policy.
Instead of changing its stimulus programme, the BOJ crafted a new weapon to prevent long-term rates from rising too much - a move some analysts took as a sign Governor Haruhiko Kuroda will hold off on making big policy shifts during the remaining months of his term, which ends in April.
At a two-day policy meeting, the BOJ kept intact its yield curve control (YCC) targets, set at -0.1% for short-term interest rates and around 0% for the 10-year yield, by a unanimous vote.
The central bank also made no change to its guidance that allows the 10-year bond yield to move 50 basis points either side of its 0% target.
"Uncertainty regarding Japan's economy is very high. It's necessary to support the economy with our stimulus policy, to ensure companies can raise wages," Kuroda told a news conference after the meeting.
"By maintaining ultra-easy policy, we will strive to achieve our price target stably and sustainably accompanied by wage hikes," he said.
The BOJ's decision to beef up its key market operation tool will help curb rises in long-term interest rates but importantly underscores its dogged commitment to defend the cap.
"Widening the yield band or dismantling YCC now would have made the BOJ even more vulnerable to market attack," said Izuru Kato, chief economist at Totan Research.
"By showing its resolve to use market tools more flexibly, the BOJ wanted to signal to markets it won't make big monetary policy changes under Kuroda."
Kuroda's last policy meeting will be held on March 9-10, ending a decade helming the bank, which brought about radical monetary stimulus but ultimately failed to meet its objective of sustainably reviving anemic consumer demand.
The BOJ's decision on Wednesday follows its surprise move last month to double the yield band, a tweak analysts say has failed to correct market distortions caused by its heavy bond buying.