Yesterday, the Bank of Japan began a 2-day monetary policy meeting. As widely expected, the regulator decided to keep its ultra-soft monetary policy unchanged.
Despite the recent fall of the yen to a 20-year low against the US dollar, the BOJ did not follow the general trend of monetary policy tightening. While many of the world's central banks are shifting to a hawkish stance, the Japanese regulator has left the key rate at a low level.
Apparently, the Bank of Japan will continue to keep 10-year yields around zero. To curb a surge in long-term interest rates, the BOJ buys an unlimited quantity of 10-year government bonds.
Thus, the authorities intend to stimulate the economy, which has not yet fully recovered from the coronavirus crisis. BoJ officials believe that these measures will help maintain market stability.
The decision to control the yield curve was made almost unanimously. Only one of the eight members of the Board of the Bank of Japan opposed it.
As a result, traders were ready for such a scenario and the BoJ's decisions were in line with forecasts. Many analysts predicted such a scenario, given the inflation rate in Japan.
According to the latest data, the consumer price index in the country is 1.2%, which is a 3-year high. However, it is much lower than the 2% target.
BoJ governor Haruhiko Kuroda has repeatedly stated that the regulator will adhere to an ultra-soft approach until the CPI rises above 2%.
After the BOJ announced its decision on the key rate, Japanese government bonds dived down. The yen also fell drastically against the US dollar.
This morning, the USD/JPY pair almost touched the psychologically important level of 130, reaching a 20-year high.
Analysts reckon that on Thursday, the US currency will rise significantly against the yen and its other main rivals. Besides, its growth could be facilitated by fresh economic reports.
The US is going to unveil the Core Personal Consumption Expenditure Price Index. The indicator is projected to grow to 5.4%against the previous estimate of 5%.
If the index climbs considerably, it will be another signal for the Fed to take a more aggressive approach to interest rates.
This week, the Fed's hawkish stance was the main catalyst for a rally of the US dollar. So, yesterday, the US dollar index soared to a 5-year high of 103.30.
