January 31, 2023

MUI Daily News

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The Bank of Japan allowed the benchmark interest rate to rise, causing the yen to rise

TOKYO – The Bank of Japan made a surprise decision to allow its benchmark interest rate to rise to 0.5% from 0.25%, pushing the yen higher and ending a long period in which it was the only major central bank not to raise interest rates.

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Bank of Japan

He said the yield on 10-year Japanese government bonds could rise 0.5% from a previous ceiling of 0.25%. The central bank has set a target range near zero for the benchmark government bond yield since 2016 and has used that as a tool to keep overall market interest rates low.

The 10-year yield, which had been stuck at 0.25% for several months due to the central bank’s cap, quickly rose to 0.46% in afternoon trading.

The yen rose in tandem. In Tuesday afternoon trading in Tokyo, one dollar bought between 133 and 134 yen, compared to more than 137 yen before the Bank of Japan’s decision.

The Nikkei, which was slightly higher in the morning, fell more than 2% as investors digested the possibility that companies might have to pay higher interest on their debt. Also, double the yen It raised the profits of many exportersTherefore, the strength of the yen may be negative for stocks.

Governor Haruhiko Kuroda, who is nearing the end of 10 years in office, is known for making moves that surprise the market, although he has played them down in recent years.

Market players expected this Time may be running out on the BoJ’s low interest rate policybut in general they did not expect Mr. Kuroda to move at the last policy meeting of the year.

The Bank of Japan’s statement on its decision on Tuesday did not mention inflation as a reason for allowing the yield on government bonds to rise to 0.5%. Instead, it cited the deteriorating performance of the government bond market and the discrepancies between the yield on 10-year government bonds and yields on other maturities.

The bank said Tuesday’s move would “facilitate the transmission of monetary easing,” indicating that it did not want the decision to be interpreted as monetary tightening.

He said the move was “a small step towards an exit” from monetary easing

Mitsubishi UFJ Morgan Stanley Securities

Strategist Naomi Muguruma.

Muguruma said the BoJ needs to narrow the gap between the 10-year yield ceiling and where the yield would be if market forces were given full control.

“Otherwise, the magma to increase yields may build up, causing yields to rise sharply when the Bank of Japan actually declines,” she said.

Japanese interest rates remain low compared to the United States and Europe, largely because their inflation rate has not risen as quickly. The Fed last week It raised the benchmark federal funds rate to a range of 4.25% to 4.5% – a 15-year high – while The European Central Bank said it will raise its main interest rate to 2% from 1.5%.

In the US, inflation has started to slow recently but is still above 7%. In Japan, consumer prices in October were 3.7% higher than a year earlier.

Japan has seen prices rise like other countries, due to the impact of the war in Ukraine as well as a weaker yen. However, the pace of inflation is more moderate in Japan, where consumers tend to be very sensitive to prices.

Write to Megumi Fujikawa at [email protected]

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