Dhe Japanese central bank is sticking to its policy of keeping interest rates low. While all other major central banks have been trying to curb inflation with higher interest rates for a long time, the council headed by Japanese central bank president Kazuo Ueda has again decided against it. The bank announced this at the end of its two-day council meeting. Monetary policy in Tokyo remains the same.
The market had expected nothing else. Ueda, who only took office in the spring, had indicated several times that he considered a “hasty” change in monetary policy to be dangerous. It is true that inflation rates in Japan have risen significantly, mainly due to energy prices in the wake of the Russian attack on Ukraine, and are unusually high at between 3 and 4 percent.
Yen cheaper than it has been for a long time
But Ueda always puts it on record that he wants to wait and see how sustainable these price increases are before taking action against them. However, unlike in Europe and the United States, rates in Japan are not that far from the desired level of 2 percent.
In this respect, Ueda met the expectations, but not the hopes of many market participants. Shortly after the announcement of the decision, the Japanese yen continued to weaken against the dollar and the euro on Friday. Because investors in America and Europe are now getting significantly higher interest rates than in Japan, the yen has been falling against the other two currencies for months. The American central bank, the Federal Reserve, surprisingly decided to pause interest rate hikes this week, while the European Central Bank raised its interest rates even further.
Good for tourists
The yen is trading at its lowest level against the dollar in seven months, and against the euro it is even lower than it was 15 years ago. For German tourists, a holiday in Japan is cheaper than it has been for a long time. And the Japanese export industry is also pleased that the exchange rate has made their products cheaper on the world markets. On the other hand, imports such as oil and gas, which have to be paid for in dollars, are becoming more expensive for the Japanese due to a weak yen.
The key benchmarks of Japanese monetary policy are the negative key interest rate and a bond purchase program with which the central bank wants to control the yields on ten-year Japanese government bonds. Especially for this second part, there are rumors on the market that the Bank of Japan could adjust them in the summer and thus dare to introduce a tighter monetary policy.
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