BoJ’s Kuroda Says He Is Not Ready To Raise Rates

Key Insights

• BoJ has recently decided to widen its yield curve control.
• However, the BoJ Governor Kuroda said that the recent move was not a step towards an exit from the negative interest rate policy. 
• Japan is focused on stimulating its economy as inflation stays at low levels by this year’s standards.

Japan’s Interest Rate Will Stay Negative

Last week, USD/JPY suffered a strong sell-off after the Bank of Japan decided to widen its yield curve control and raised the yield cap for the 10-year bonds from 0.25% to 0.5%.

The yield of 10-year Japan government bond touched the 0.50% level on the next day after the decision. Currently, it has settled near the 0.45% level.

The BoJ’s decision was surprising as the bank had the most dovish policy among the world’s leading central banks. Currently, the BoJ holds the interest rate at -0.10%. Not surprisingly, market participants have stated to evaluate the potential for higher interest rates.

However, the BoJ Governor Haruhiko Kuroda looks determined to keep the rate in the negative territory. Kuroda said that the yield control decision was “definitely not a step toward an exit”, which meant that he intended to keep the interest rate below zero. Kuroda added that the BoJ will continue “with monetary easing under yield curve control.”

Japan’s Inflation Remains Low By This Year’s Standards

While leading central banks rush to raise rates in order to fight inflation, the BoJ remains committed to its negative rate policy as Japan’s inflation stays low by modern standards.

The country’s inflation has been rising steadily this year and reached 3.7% in November. EU Inflation rate was 10.1% in November, while U.S. inflation declined to 7.1%.

Japan has major problems with economic growth for many years, so the central bank is forced to stimulate the economy despite inflation threats.

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