On Thursday, the Bank of Japan voted 8 to 1 to keep the policy interest rate unchanged at 0.25%, marking the third consecutive pause in rate increases. Among them, Bank of Japan member Naoki Tamura supported a rate hike to 0.5%, which was rejected by a majority vote.

After the announcement of the Bank of Japan's interest rate decision, the US dollar rose sharply against the Japanese yen by 70 points, surpassing 155 and reaching a high of 155.27. Overnight, the Federal Reserve hinted at a slower pace of interest rate cuts, boosting the dollar to a two-year high.

The decision to stay put highlights policymakers' inclination to take more time to assess whether wage increases will broaden and their determination to maintain inflation close to the long-term target of 2%.

The Bank of Japan stated that the Japanese economy is recovering moderately, but there are still some weaknesses. In the latter half of the three-year forecast period until fiscal 2026, inflation levels may be broadly in line with the Bank of Japan's price target.

The Bank of Japan also published the results of its survey on the advantages and costs of various unconventional monetary easing tools used in the fight against deflation over the past 25 years, marking another symbolic step towards ending its massive stimulus measures. This policy review was initiated when Kazuo Ueda took office in April last year.

The Bank of Japan's monetary easing policy review report indicates that the Bank of Japan should continue to implement monetary policy from the perspective of achieving the 2% price stability target sustainably and stably. No specific measures should be ruled out at this point when considering future monetary policy actions.

Mizuho Securities stated that the sharp decline in the US stock market on Wednesday, due to potential market instability, supports the argument for the Bank of Japan to delay further tightening of its policy. If the Bank of Japan does not raise rates today or hint at a rate hike in January next year, the dollar-yen exchange rate may test the high of 156.75 on November 15.

Bank of Japan Governor Kazuo Ueda is expected to hold a press conference at 2:30 PM to explain the policy decision. The market will focus on the press conference held later by Bank of Japan Governor Kazuo Ueda for clues on whether the Bank of Japan will raise rates in January or March next year.

Naoya Hasegawa, chief bond strategist at Okayama Securities, stated: 'The more Kazuo Ueda tries to explain the rationale behind the decision to hold steady, the more dovish he appears, which might lead to a weakening of expectations for a rate hike in the near term. He may issue hawkish comments regarding future rate hike paths and Japan's neutral interest rate to avoid overly lowering expectations for rate hikes in January or March.'

IG Markets believes that if the Bank of Japan indeed misses the opportunity to raise rates this month, coupled with the shadow cast by the inauguration ceremony of the US President over the Bank of Japan meeting in January next year, it means that a rate hike before the March meeting is unlikely. This would be a terrible outcome for the yen, potentially causing it to fall back to 160. The Bank of Japan's long delay in raising rates may allow the dollar to rise against the yen back to 160.

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Article reprinted from: Jinshi Data