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The Bank of Japan maintained ultra-low interest rates on Friday and its guidelines to keep borrowing costs at “current or lower” levels, signaling its determination to focus on supporting the tepid economic recovery. economy after the COVID-19 pandemic.

However, in a nod to the hit the yen’s recent sharp declines could have on the economy, the central bank said it needed to “closely monitor” the impact exchange rate moves could have. on the economy.

At the two-day policy meeting that ended on Friday, the BOJ stuck to its target of -0.1% for short-term rates and its promise to guide the 10-year yield around 0% with a vote. 8 to 1.

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The decision was widely expected, but leaves the BOJ’s position even further at odds with other major central banks, which are aggressively tightening policy to curb soaring inflation.

Here are excerpts from BOJ Governor Haruhiko Kuroda’s comments during his post-meeting press conference, which was conducted in Japanese, as translated by Reuters:

RECENT YEN WEAKNESS

“The recent rapid declines in the yen heighten uncertainty about the outlook and complicate business planning for companies. It is therefore negative for the economy and undesirable.

“What’s important is that companies that take advantage of the weak yen increase their capital expenditures and salaries.

POLICY RELAXATION

“So far, corporate earnings are strong and capital spending is quite strong, although there are weaknesses in some sectors. I don’t think the recent currency volatility is having an immediate negative impact on the business sentiment. But, as many business leaders say, high currency volatility is undesirable. The Japanese economy is recovering from the pain of the COVID-19 pandemic and is experiencing a renewed pressure due to rising commodity costs. We must therefore support the economy with an accommodative monetary policy. If necessary, we are ready to ease further without hesitation.

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“I don’t see the need to relax the policy any further in the immediate term. But if the need arises, we will act.

ON THE BOJ’S IMPLIED 50 BP BAND AROUND ITS 10-YEAR JGB YIELD TARGET

“Long-term interest rates in the US and Europe have risen quite rapidly, pushing the Japanese 10-year JGB yield up near our implied ceiling. If the 10-year JGB yield exceeds 0.25%, this would lessen the effect of our monetary easing. As such, we have no plans (to expand the band.)”

ON IF BOJ NEEDS TO CONDUCT ANOTHER REVIEW OF ITS POLICY FRAMEWORK GIVEN STIMULUS MOUNTING SIDE EFFECTS

“The yield curve is shaped in a way that is consistent with our monetary policy guidance…I don’t think there are any doubts about the sustainability of yield curve control.”

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“We do not intend to conduct another policy review. But there is still a need to steer monetary policy appropriately in line with global economic and financial developments.

ON THE RECENT RISE IN JGB YIELDS

“We are prepared to take the necessary steps (to defend the 10-year JGB yield cap), such as conducting unlimited fixed-rate trading for JGBs, including those with maturities other than 10 years. I don’t think YCC faces a limit.

ON IF THE WIDENING OF THE US AND JAPAN INTEREST RATE DIFFERENCE IS CAUSING THE LOWER YEN

“Interest rate differentials may be partly responsible for recent currency movements… But exchange rates move based on a variety of factors. Central banks do not target exchange rates to guide monetary policy. Our monetary policy is guided solely with the aim of achieving price stability. (Reporting by Leika Kihara; Editing by Uttaresh.V)

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