BOJ keeps ultra-low rates,

sees inflation near target,

but yen skids
Leika Kihara

Pedestrians walk past the Bank of Japan building in Tokyo, Japan March
18, 2024. REUTERS/Kim Kyung-Hoon/File Photo Purchase Licensing Rights

TOKYO, April 26 (Reuters) - The Bank of Japan kept

interest rates around zero on Friday and highlighted a
growing conviction that inflation was on track to durably
hit 2% in coming years, signalling its readiness to hike
borrowing costs later this year.

But a lack of clear guidance on the future rate hike path

triggered a broad-based decline in the yen , pushing it
down to a fresh 34-year low past 156 to the dollar and
keeping markets on edge over the chance of currency
intervention.
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The central bank also stuck to its guidance in March about

buying government bonds, dashing hopes by some
traders that it could soon taper purchases partly to slow
the yen's declines.

"The currency takeaway is certainly disappointment from

the lack of guidance from the bank," said Rodrigo Catril,
senior FX strategist at National Australia Bank in Sydney.

"To me the currency market is telling us it believes that

the BOJ policy is too loose and hence why the currency is
so weak. The Bank has the ability to do something about
that by changing its policy, and if it's not going to change
the policy, then we shouldn't expect the yen to
strengthen."

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As widely expected, the BOJ maintained its short-term

interest rate target at a range of 0-0.1%, which was set
just a month ago when it made a historical exit from its
massive stimulus programme and negative interest rates.
Reuters Graphics Reuters Graphics

Governor Kazuo Ueda said while the impacts of yen

moves were usually temporary, their effects on underlying
inflation could not be dismissed, especially if they pushed
up wages.

"That's not to say we need to wait until the outcome of

next year's wage talks become clear," Ueda said at a
press briefing after the meeting. "If we can predict such
an impact, we could change policy."

In a sign of its growing confidence in sustainably

achieving its price target, the BOJ said in its quarterly
outlook report that trend inflation was expected to pick up
gradually as wages and prices rise in tandem.
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"Underlying inflation is likely to be at a level that is

generally consistent with our price target" around late
2025 through 2026, the report said.

The assessment compared with the previous report's

view that prospects for achieving 2% inflation were
"gradually heightening, albeit with some uncertainties."

In the quarterly outlook, the board projected core

consumer inflation to hit 2.8% in the year that began in
April, before slowing to 1.9% in fiscal 2025 and 2026.

The board expected the so-called "core core" index,

which excludes the effect of fuel costs, to hit 1.9% in both
fiscal 2024 and 2025, before accelerating to 2.1% in
2026.

The projections for "core core" inflation, which is closely

watched by the BOJ as an indicator of the broader price
trend, for 2024 and 2025 were unchanged from January.

"The forecast, very clearly in the upper 2% range, opens

the way to future rate hikes given, of course, that the
'virtuous circle' stays intact," said Naomi Fink, global
strategist at Nikko Asset Management.

"The key to the 'virtuous circle' remains positive real

wages, and higher-than-expected inflation would
challenge this virtuous circle. Only in the event inflation is
eating into real wages, this is an argument for greater
central bank hawkishness," she said.

For more analysts' comment, click here.

Traders are seeking clarity on how soon the BOJ will start
to reduce its bond buying and scale back its massive
balance sheet, which could signal further, gradual policy
tightening without an outright rate move.

In the statement issued on Friday, the BOJ removed

explicit quantitative guidance issued at its March meeting
of roughly 6 trillion yen ($38.42 billion) in government
bond purchases per month, which are part of its stimulus
programme.

Instead, the central bank wrote in the statement that it

would "conduct purchases in accordance with the
decisions made at the March 2024 policy meeting", which
some analysts read as giving it latitude to tweak the
programme.

Recent threats of intervention by Japanese authorities

have failed to arrest the yen's slide against the dollar to
levels unseen since 1990, adding to headaches for
policymakers worried about the hit to consumption from
rising living costs.

Many traders believe there is not much Tokyo can

fundamentally do to reverse the currency's slide with
interest rates and momentum heavily skewed against it.
Ueda has said the BOJ could lift rates further if it
becomes confident wage gains will broaden and prod
firms to hike service prices, thereby kicking off a cycle of
wage and price rises.

Underscoring uncertainty over the price outlook, data

released on Friday showed Tokyo core inflation, a leading
indicator of nationwide figures, slowed much more than
expected to slip below the BOJ's 2% target in April.

Economists polled by Reuters are divided on the timing of

the BOJ's next hike with some betting on action in the
third quarter, while others project October-December or
beyond.

($1 = 156.1600 yen)

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Reporting by Leika Kihara; Additional reporting by Tom

Westbrook in Singapore and Makiko Yamazaki, Satoshi
Sugiyama, Kantaro Komiya and Tetsushi Kajimoto in
Tokyo; Editing by Sam Holmes and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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