Japan's central bank announced cuts to its special emergency stimulus during the pandemic, but maintained its ultra-loose monetary policy.
The Japanese yen was stable against most of the major currencies in today's trading (17/December), after the latest announcement about the policy of the Japanese central bank (BoJ). USD/JPY is circulating in the 113.60s range, near yesterday's closing price. EUR/JPY and GBP/JPY are also struggling in a narrow range.
The BoJ announced cuts to its special emergency stimulus during the pandemic, but maintained its ultra-loose monetary policy and extended relief funds for small companies. This decision is in line with the trend of major central bank announcements this week being more hawkish than market expectations. However, the BoJ in particular will still maintain negative interest rates in the long term -in contrast to other major central banks-.
"The bigger picture is this: in a week where the Fed is signaling several rate hikes next year, and Norges Bank and the BoE are raising rates, the BoJ (so) sounds very dovish," said Marcel Thieliant, senior Japan economist at Capital Economics, as quoted by Reuters, "The conclusion is that the BoJ will remain among the few central banks that will not tighten policy going forward."
The BoJ's stimulus cuts this time were limited in the form of slowing the pace of buying corporate bonds and commercial securities back to pre-pandemic levels. The reason is that the financial condition of large companies has improved.
"Financial conditions in Japan as a whole have improved, although the significant impact of the COVID-19 pandemic on the domestic and overseas economy continues," the BoJ said in a statement accompanying its policy announcement this morning.
At the same time, the BoJ kept its short-term benchmark interest rate target at -0.1 percent and its 10-year bond yield target at 0 percent. The BoJ also extended the deadline for the pandemic loan scheme from March 2022 to six months later, to ensure commercial banks will continue to channel funds to small companies.
The BoJ expressed optimism about the trend of the Japanese economy. However, the central bank also warned that the developments of the pandemic and supply disruptions continue to overshadow the economic outlook. This uncertainty - coupled with the still sluggish inflation rate - will force the BoJ to maintain negative interest rates even though the economy is showing signs of improvement.
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