Bank of Japan:

Article Source: https://mainichi.jp/english/articles/20230118/p2g/00m/0bu/018000c

Article:

TOKYO (Kyodo) -- The Bank of Japan on Wednesday made no change to its ultralow rate policy, defying market pressure to do so after last month allowing key long-term government bond yields to move in a wider range.

Despite forecasting inflation to reach 3 percent, above its 2 percent target, at the end of a two-day policy meeting, the BOJ stuck to its yield curve control program designed to keep both short-term and long-term interest rates at rock-bottom levels.

The yen plunged relative to the U.S. dollar immediately after the BOJ's decision.

Ideas:

It's not a surprise that the Bank of Japan had no change in its ultra-low rate policy even though there might have been market pressure to increase the key rate.

Probably the BOJ allowing the long-term government bond yields to move in a wider range might have been somewhat of a compromise to try and keep markets content.

But as seen the yen plunged relative to the US dollar so not all in the market were satisfied with what the BOJ did.

Perhaps the BOJ has a hidden motive even though inflation is expected to reach 3 percent in the future. 

For example, keeping the rate low means exports can gain more revenue which can offset the losses related to the increase in prices of imports.

Article:

The 0.5 percent cap on 10-year Japanese government bond yields was retained in a push-back against market players who sold government bonds to test the tolerance of the nation's dovish central bank and challenge the recently altered limit.

The yen had recovered against the U.S. dollar after it tumbled last year when financial markets priced in the policy gap between the BOJ, deeply committed to monetary easing, and the U.S. Federal Reserve which began a rate hike cycle to fight surging inflation.

Many BOJ watchers had expected no change this time, even amid growing speculation the central bank would further expand the 10-year yield trade band of minus 0.5 percent and 0.5 percent, or scrap the yield curve control program, launched in 2016, altogether.

Ideas:

It seems the BOJ is set in its ways and be even stubborn to the point of not allowing market outcome to determine what it should do. 

Market players might try to push the BOJ and what is does but in the end the BOJ has the final say related to what happens and not market players.

While the US might feel it has the best strategy for the US economy, and the BOJ feels it has the best strategy for the Japanese economy too.

But to be fair to both the US Federal Reserve and the Bank of Japan the strategy of both groups really hasn't reduced inflation in both countries.

Article:

The BOJ said it expects short-term and long-term interest rates to stay "at their present or lower levels," maintaining its policy guidance.

Under its yield curve control program, short-term interest rates are set at minus 0.1 percent while 10-year yields are guided around zero percent.

In a fresh outlook report, the BOJ forecast core consumer prices excluding volatile fresh food items to rise 3 percent in the year to March 2023, up from its earlier projection of 2.9 percent. The key gauge of inflation will likely gain 1.6 percent in fiscal 2023 and then 1.8 percent, undershooting the 2 percent inflation target.

Ideas:

It's not a surprise that the BOJ is maintaining is current policy as most likely they feel it's the best strategy for the Japanese economy.

The 2 percent inflation target is really not about wholesale prices but more about consumer demand and consumer spending which has not been very robust and it's usually not as robust as in the US or the EU.

Inflation is really not a bad situation if it includes an increase in consumer spending and or consumer demand for the Japanese economy.

Unfortunately, because of price increases and no real increases in wages consumer demand and consumer spending is not as robust as it should be just yet.

Have a nice day and be safe!