BOJ says rising female, senior workers keeping inflation low

  • BOJ says rising female, senior workers keeping inflation low

BOJ says rising female, senior workers keeping inflation low

Reassurance by the Bank of Japan that it will keep its super-easy monetary policies in place for an extended period pushed the yen and global bond yields lower on Tuesday, though mounting concerns about the tech sector kept world stocks under pressure.

Some market watchers said Japan's reluctance to change its policy aggressively stems from its desire to keep its currency competitive, especially against the Chinese yuan CNY=CFXS, after Beijing let its currency weaken by more than 7 percent versus the dollar since mid-June as trade war tensions escalated.

"Speculation and perhaps fear prior to the BOJ decision was that policy tweaks could include allowing interest rates to go higher. The focal point for us is whether the BOJ hints at future policy change", said Shin Kadota, senior strategist at Barclays in Tokyo.

The Japanese yen decreased 0.3% to 111.39 per dollar, the weakest in more than a week.

As my colleague Fawad Razaqzada noted on Friday, this week promises to be an interesting one for FX traders, with the Bank of England, Bank of Japan, Federal Reserve all set to meet, in addition to the always-noteworthy monthly Non-Farm Payrolls report on Friday.

But they have partially modified their policy by allowing some gains in the yield of the benchmark 10-year government bond.

Kuroda raised the BOJ's yield cap on the 10-year Japanese government bond to 0.2% from around 0.1%.

"Yields may move upward and downward to some extent mainly depending on economic and price developments", even as the BOJ guides them around zero, the central bank said in a statement announcing the policy decision. The Topix stock index sank 0.8 percent to the lowest in a week on the biggest decrease in nearly four weeks.

A loose pledge to increase government bond holdings by about 80 trillion yen annually remained, though it added that it will conduct purchases in a "flexible manner". Likewise, the projection for fiscal 2019 was lowered to 1.5 percent from 1.8 percent and that for 2020 to 1.6 percent from 1.8 percent.

The new forecasts show the BOJ's struggle to stoke inflation.

The euro has had problems of its own as the European Central Bank emphasized that rates would not be rising until the second half of next year.

"It seems that the BoJ would be happier to see long-term rates increase but it doesn't want to see a concurrent appreciation of the yen".

The BOJ released a detailed report on Tuesday analyzing why inflation hadn't risen as expected.

The BoJ meeting that ends on Tuesday will be closely watched amid speculation the central bank might tweak its massive asset-buying programme and take a step towards less monetary policy accommodation.

"The BOJ never had, and under Kuroda probably never will have, any intention of turning hawkish", said Roberto Perli, a partner at Cornerstone Macro LLC in Washington and a former Fed economist.