Hikes Rates, But Maintain Bond Purchases & Financial Conditions Expected To Stay Supportive

The BoJ has hiked rates to 0.0% (lower bound) to 0.1% (upper bound) from negative territory. This is the first rise in interest rates since 2007.

• Critically, the central bank stated that the price stability target of 2% came in sight, while QQE and YCC and NIRP have fulfilled their respective roles. The short term rate will be the primary monetary policy tool. Still, the central bank expects financial conditions to remain accommodative.
• In terms of votes it was 7-2 to raise rates (to 0-0.1%), while JGB purchases will continue largely as before (in 8-1 vote). Currently the bank purchases around 6trln yen per month. It was unanimous vote to end ETFs and J-REITS purchases. The bank will also gradually reduce the amount of CP and corporate bond purchases (looking to end such purchases in a year).
• On the economy the central bank noted that the economic recovery continues gradually, but there are some pockets of weakness. It continues to expect steady wage rises this year, following a firm increase last year. The virtuous cycle between wages and prices has become more solid, thereby signifying the price stability target would be achieved.
• In terms of market reaction, USD/JPY got to highs of 149.92, but is now back under 149.70. There is an option expiry at 150.00 today, which may be influencing sentiment. The stance around accommodation financial conditions and keeping bond purchases largely unchanged is likely weighing on the yen.
• Much of what the BoJ stated today has generally been in the local media over recent weeks.
• In terms of JGBs, JBM4 currently sits in the middle of the post-BoJ Decision range at +11 compared to settlement levels.