USD/JPY rises as BoJ keeps rates on hold but allows yields to rise
As widely expected, the BoJ maintained its -0.1% target for short-term interest rates but expanded the movement it will allow to yields.
The control is a shift from its original policy to control yields at 0% to one where the authorities will allow yields to rise to a ‘loose’ 1%. This has a restrictive effect, but in the context of other markets where benchmark yields are between 4-5% it means that there’s a reason to sell yen. This is why USD/JPY has risen back up above ¥150.
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Maintaining stability
The central bank of Japan, the BoJ, recently announced its decision to keep interest rates unchanged. This means that they will continue to charge commercial banks a negative interest rate of 0.1% when they deposit money with the central bank. Additionally, they will keep the rate stable for the 10-year government bonds.
This decision is in line with what many people expected, and it shows that the Bank of Japan wants to maintain a policy that makes it easy for businesses and consumers to borrow money. By keeping interest rates low, the central bank hopes to encourage spending and investment, which can help stimulate the economy.
Boosting economic activity
The BoJ's decision comes at a time when the country is facing economic challenges, including slow growth and the ongoing impact of the COVID-19 pandemic. The central bank has been struggling to boost inflation for many years, and the pandemic has only made things worse.
To address these challenges, the BoJ is also exploring other measures to help kickstart the economy. By maintaining the negative interest rate and the stable rate for government bonds, they aim to ensure stability in the financial markets and make sure that there is enough money available for businesses and consumers to borrow. This will help keep borrowing costs low, which can encourage businesses to expand and consumers to make big purchases.
Overall, the BoJ's decision is a reflection of its commitment to supporting the economy during difficult times. They are trying to find a balance between encouraging growth and keeping the financial markets stable. By doing so, they hope to boost economic activity and bring about higher inflation.
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