The Bank of Japan (BOJ) maintained ultra-low interest rates, confirming that it won’t join the US Federal Reserve and other major global central banks in tightening monetary policy.
The Japanese central bank kept its target for short-term interest rates at -0.1% and its target for the 10-year Japanese government bond yield at nearly zero.
Traders worldwide took the Bank of Japan’s decision to stand pat as a sign that the interest-rate differential between the US and Japan would continue to widen. The yen weakened to around 134.50 to the dollar shortly after the announcement from around 133.0 before the decision, although it subsequently recovered some ground.
On Monday, the Japanese yen fell to its lowest level since 1998. The weak yen means Japan is paying more for imported food and energy.
Interest-rate differences are the main reason markets have pushed the yen lower: investments in other currencies yield more.
Recently, the US Federal Reserve raised its policy target by 0.75 percentage points, its most significant interest rate increase since 1994. The Bank of England on Thursday raised its key interest rate by 0.25 percentage points for the fifth consecutive time. The Swiss National Bank increased rates -0.25% from -0.75%. Like Japan, Switzerland has seen upward pressure on prices because of a weak currency exchange rate.
Consumers in Japan haven’t experienced inflation in decades. Therefore, they have resisted higher prices, and, as in several other countries, inflation is politically sensitive.
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