MNI STATE OF PLAY: BOJ On Hold For Years As MOF Buys Yen

Bank of Japan Governor Haruhiko Kuroda insisted on Thursday that the BOJ will not raise interest rates or change its forward guidance for policy rates for years, as yen weakness prompted the Ministry of Finance to purchase the currency for the first time since 1998.

The yen fell to a fresh 24-year low of 145.40 to the dollar immediately after the BOJ said it was keeping monetary policy on hold, before rocketing back towards 142 as the MOF intervened.

Speaking after the BOJ board’s first unanimous vote since October 2014, Kuroda said the weak yen has a negative effect on the economy and prices and that the BOJ was in close contact with the government over the matter. (See MNI INSIGHT: Yen At 150 Would Put Pressure On BOJ)

“Recent forex moves are one-way and are partly caused by speculative trading, and the rapid weak yen is increasing uncertainties and making it difficult for firms to plan their future businesses,” Kuroda told a news conference minutes before news of the currency market intervention.

He stressed that yen weakness would not prompt a move away from the BOJ’s easing stance.

“Fine-tuning may be possible, depending on developments of economy and prices. But the BOJ will not raise interest rates for the time being. For the time being means a long span, such as a few years,” the governor said.

In its decision, the BOJ noted that inflation expectations had risen. But its policy stance is increasingly divergent from those of other major central banks, such as the Federal Reserve, the European Central Bank and the Bank of England, which are raising policy rates to rein in inflation.

EASY POLICY

The BOJ decided to phase out its special financing facility for smaller firms, and said it would provide unlimited funds against pooled collateral, with a view to meeting a wider range of financing needs.

While core inflation this fiscal year will be stronger than the BOJ forecast in July, the year-on-year rise in prices will slow to around 1.5%. in fiscal 2023, the governor said.

The Board left its forward guidance for policy rates unchanged, indicating that policymakers remain vigilant against near-term downside risks.

The BOJ said it “will not hesitate to take additional easing measures if necessary” and also “expects short- and long-term interest rates to remain at their present or lower levels.”