Yen gains as the Bank of Japan leaves rates on hold

(Photo by Doug Pensinger/Getty Images)

The Japanese yen strengthened while the Nikkei ceded some ground after the Bank of Japan left monetary policy unchanged and raised its economic growth forecast.

A short while ago the yen was at 113.29 per US dollar, up 0.4% from Monday, when it had added 1.2%. The Nikkei 225 was 1.8% lower at 19,028 after touching a session low of 19,016.

Voting 7-2, the BoJ decided to retain its quantitative and qualitative monetary easing (QQE) with yield curve control program, keeping interest rates unchanged at 0.1% while pledging to purchase Japanese government bonds (JGB) so that 10-year yields will remain at around zero percent. The decision to leave monetary policy settings unchanged came despite an upgrade to the bank’s real GDP growth forecasts for the next two financial years, an outcome that was also widely expected by financial markets.

The BoJ now sees real GDP growth of 1.5% in the 2017 fiscal year, up from its previous forecast of 1.3% offered in November last year, with growth in the 2018 fiscal year now expected to come in at 1.1%, 20 basis more than it’s previous assessment.

Source: BoJ

Despite those increasing its GDP estimate, the BoJ left its forecasts for core consumer price inflation (CPI), which excludes the effect of fresh food prices, unchanged over the same period.
Core CPI is expected to accelerate to 1.5% in the next financial year, before rising further to 1.7% in fiscal year 2018. Both remain below the bank’s 2% inflation target, although the bank still sees this being reached within the 2018 fiscal year.

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