World Economy

Yen Strengthens as Japan Keeps Rates on Hold

Yen Strengthens as Japan Keeps Rates on HoldYen Strengthens as Japan Keeps Rates on Hold

After all the speculation and hype, the Bank of Japan ultimately ended up announcing only a small tweak to its policy on Friday.

The bank said it would increase its exchange-traded fund purchases to an annual pace 6 trillion yen ($58.7 billion), up from its previous pace of 3.3 trillion yen, Business Insider reported.

Moreover, it left its Japanese government bond purchases unchanged at an annual rate of 80 trillion yen and held its key interest rate unchanged at -0.1%.

“There’s always tomorrow,” a HSBC team led by Frederic Neumann wrote in a note. “The BoJ today offered markets a little appetizer, but the full menu of easing has been kept in the oven for another day.”

Perhaps the most notable bit from the BoJ’s Friday meeting was that the bank said it will conduct a review of the current policy settings and economic environment for its next meeting in September.

“As this suggests the need and room for further policy action will be reviewed at the next monetary policy meetings, expectations for easing could linger until then,” argued Barclays’ Kyohei Morita and Yuichiro Nagai in a note.

On the flip side, the HSBC team wrote:

“This may raise hopes for something punchier. But we counsel caution: to us, today’s decision suggests that the BoJ has reached the limits of its current policy framework. A significant increase in JGB purchases is difficult given that the central bank, by its own admission, may run into trouble at some stage obtaining enough bonds to keep the program going.”

The Japanese yen strengthened against the dollar by as much as 2.9% to 102.26 in the aftermath of the announcement.

The BoJ has been under pressure to pursue even more aggressive measures recently, as Japan’s economy continues to slog along. However, there have been questions as to whether the bank could actually do that given its already extremely accommodative posture, and The Wall Street Journal has previously reported that some bank officials “are signaling a reluctance to act.”

Still, for the most part, analysts were expecting the bank to do something at Friday’s meeting. A Bloomberg survey conducted from July 15 to 22 found that 32 out of 41 analysts forecast that the BoJ will expand monetary stimulus—the highest percentage of respondents in any poll in over the last three years.

So the bank’s surprise decision comes as a bit of let down to Japan watchers.