Japanese Yen is facing renewed pressure following BoJ’s policy announcement, where expectations for significant changes were left largely unmet. Instead, the central bank introduced a minor tweak in the language concerning its yield cap, resulting in underwhelming market reactions. USD/JPY is back above 150 mark, after dipping to 148.79 overnight.
Under the Yield Curve Control framework, BoJ has maintained the short-term policy interest rate at -0.10%, while 10-year JGB yield target remains at around 0%. These decisions were reached unanimously. However, the central bank subtly altered its wording regarding the 10-year JGB yield cap, now referring to the 1.0% level as a “reference in its market operations.” This move is perceived as transforming the cap into a flexible upper boundary rather than a strict limit.
Adding to this, BoJ stated, “Given extremely high uncertainties over the economy and markets, it’s appropriate to increase flexibility in the conduct of yield curve control.” This sentiment was not universally shared, as Nakamura Toyoaki expressed dissent, suggesting that increasing flexibility should be contingent upon confirming a rise to firms’ earning power.
In a significant update, BoJ’s new economic projections reveal upgraded core inflation forecasts across the board, with a noteworthy jump from 1.9% to 2.8% for fiscal 2024.
Here’s a summary of the updated forecasts:
Core CPI Forecasts (July):
- Fiscal 2023: 2.8% (up from 2.5%)
- Fiscal 2024: 2.8% (up from 1.9%)
- Fiscal 2025: 1.7% (up slightly from 1.6%)
Core-Core CPI Forecasts:
- Fiscal 2023: 3.8% (up from 3.2%)
- Fiscal 2024: 1.9% (up from 1.7%)
- Fiscal 2025: 1.9% (up from 1.8%)
GDP Forecasts:
- Fiscal 2023: 2.0% (up from 1.3%)
- Fiscal 2024: 1.0% (down from 1.2%)
- Fiscal 2025: 1.0% (unchanged)
