Bank of Japan Holds Rates Steady, Yen Tumbles to a New 34-year Low

Akira Ito
26 Apr, 2024
Tokyo

Stocks in Tokyo advanced after the Bank of Japan held its reference rate steady and signaled possible rate cuts later. 

The Nikkei 225 Stock Average jumped 1.2% to 38,083.63, and the Topix index added 1% to 2,692.52. 

 

BOJ Holds Rates Steady and Lifts Inflation Outlook

The Bank of Japan held its overnight lending rate range steady between zero and 0.1% in a widely anticipated move. 

In a statement released after the two-day policy meeting, the central bank also increased its inflation expectation to 2.8% from the previous estimate of 2.4% for the financial year 2024. 

The committee also lifted its core inflation estimate to 1.9% from the previous estimate of 1.8%, citing persistently high import inflation and a lack of policy support. 

The Bank of Japan is struggling to keep interest rates low to support economic expansion, but the move is also widening the interest rate gap between the U.S. and Japan. 

The central bank lifted its rate for the first time since 2007 and ended its negative rate regime after revising its interest rate range to between zero and 0.1% in March. 

The U.S. Federal Reserve has increased its policy rate eleven times between March 2022 and July 2023, from zero to between 5.25% and 5.50%, but the rates in Japan have hovered near zero. 

The Japanese yen dropped to a new 34-year low of 156.16 against the U.S. dollar after the Bank of Japan said it will continue to purchase Japanese government bond purchases "in accordance with the decisions made at the March 2024 monetary policy meeting." 

The Japanese yen has dropped 9% so far in the year, and extended loss to 33.5% since December 2020. 

The central bank stepped up its purchase of Japanese government bonds over the last three years in order to keep 10-year Japanese government bond yields from rising despite rising inflationary pressure driven in large part by energy imports. 

 

Tokyo Area  Inflation Slowed to two-year Low

In other economic news, the Tokyo area's core inflation slowed to a two-year low of 1.6%, reflecting the start of educational subsidies. 

The core consumer price index for the Ku-area of Tokyo declined to a two-year low of 1.6% in April, the Statistics Bureau of Japan reported Friday. 

The overall consumer price index for the metropolitan city fell to 1.8% in April from 2.6% in March. 

Tokyo's inflation rate declined below the target rate of 2% set by the Bank of Japan for the second time this year, lowering the urgency to lift rates in the immediate future. 

 

Japan Stock Movers 

Tech stocks led the gainers in Tokyo trading, and SoftBank, Advantest, Tokyo Electron, and Socionext jumped between 1% and 5%. 

Vehicle makers advanced after the yen drifted to a new low, and Toyota Motor, Honda Motor, and Nissan Motor gained between 0.3% and 0.7%.

Leading banks also gained, and Mitsubishi UFJ, Mizuho Financial Group, and Sumitomo Mitsui advanced around 0.3%. 

In overnight trading in New York, market indexes extended losses after the U.S. economy expanded at a slower annual pace of 1.6% in the first quarter, and consumer prices rose at a faster pace of 3.4%. 

The latest economic data suggests that the U.S. Federal Reserve is likely to hold rates steady at its next policy meeting in June amid stubborn inflation. 

 

Asian Markets 

Elsewhere in Asia, market indexes in Hong Kong and Shanghai advanced on earnings optimism after CNOOC reported a 24% jump in its quarterly profit. 

The market indexes in India edged slightly higher, extending the weekly advance to 1.1%, and the benchmark indexes in South Korea added 1.1%, extending the weekly rise to 1.7%.