Addressing the post-policy meeting press conference on Friday, Bank of Japan (BoJ) Governor Kazuo Ueda said that the Bank “decided to reduce JGB purchases to ensure long-term yields are formed more freely in markets.”
The BoJ kept the interest rate steady at 0% for the second meeting in a row in June.
Additional quotes
Important to reduce JGB purchases in a foreseeable manner, while ensuring flexibility to be mindful of stability in bond market.
Japan’s economic, price uncertainties remain high.
Must pay due attention to financial, FX markets, impact on Japan’s economy, prices.
Reduction of JGB purchases will be considerable volume.
Specific amount, framework of JGB purchase reduction will be decided while listening to market participants’ input.
Will start reduction of JGB purchase immediately after deciding at next policy meeting.
Monetary easing from JGB buying’s stock effect will continue to work while we reduce bond holdings.
Conceivable to adjust rates earlier if price outlook is revised up or if upside risks heighten.
Every day we are checking FX moves, sustainability of the moves, impact on domestic prices, wages.
Will adjust rates if underlying inflation rises toward 2%, but cannot comment now when that will become evident.
Don’t think we can reach the state of JGB holdings that is desirable in long-term in a year.
Currency swings have larger impact on prices now.
Don’t think balance sheet would be in favourable shape in 1-2 years.
Want to show guidance for JGB tapering for 1-2 years to increase visibility.
Decided to put off detailed plan of JGB tapering until next meeting to have considered discussion with markets.
Difficult to say how long bond tapering would last after 1-2 year period.
We will set short-term interest rate at July meeting also considering JGB purchase reduction.
Believe impact of recent auto shipment halt is smaller than earlier halt.
Keep view that Japan’s consumption turns stronger as wages gradually rise, inflation subsides.
Govt’s JGB issuance plan would follow and take into account boj’s bond tapering plan.
We announced JGB purchase reduction today to avoid uncertainties until July meeting as much as possible.
Market reaction
USD/JPY holds gains near six-week highs following these comments. The pair was last seen 0.70% higher on the day at 158.18.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Source: https://www.fxstreet.com/news/bojs-ueda-important-to-reduce-jgb-purchases-in-a-foreseeable-manner-202406140635