BoJ holds steady in year-end meeting

BoJ maintains key interest rates; signals cautious optimism

By Ahmed Azzam | @3zzamous | 19 December 2023

Market open
  • Bank of Japan keeps short-term interest rate at -0.1% and 10-year bond yield target near 0%.

  • Flexibility remains with a 1.0% cap for long-term government bond yields.

  • BOJ's commitment to monetary easing continues amidst global uncertainties.

BoJ's consistent monetary stance

In its final meeting of the year, the Bank of Japan (BoJ) has decided to maintain its key short-term interest rate at -0.1% and the yield target for 10-year government bonds at approximately 0%, aligning with market expectations. The central bank also preserved the flexible upper limit of 1.0% for long-term government bond yields. This decision highlights the BoJ's ongoing commitment to monetary easing, acknowledging the high uncertainties prevailing in both domestic and international spheres. The central bank is prepared to adjust its policies in response to changes in economic activity, price trends, and financial conditions.

Governor Ueda's cautious optimism

BOJ Governor Ueda, during the Q&A session, expressed increasing confidence in reaching the 2% inflation target, a positive signal for JGB bears. Ueda noted positive expectations regarding wage increases next year, further fueling this optimism.

BoJ's measured approach in policy changes

Contrasting with the earlier tone that might have encouraged bond bears, Governor Ueda clarified that the BoJ will not rush to alter its policy in anticipation of interest rate cuts from the Federal Reserve. This suggests that a significant bear market in Japanese bonds might not materialize soon. The USD/JPY pair, reacting to these developments, is moving higher, approaching the 144 mark. Ueda's statement about careful communication indicates a cautious and gradual approach to any future policy changes.