Bank of Japan to release interest rate decision

The Bank of Japan (BoJ) will announce its interest rate decision today.

The decision comes at a time when global bond yields are skyrocketing due to rising inflation expectations and a possible economic recovery from the pandemic. However, such a reflation swap was not reflected in the Japanese bond markets due to the BoJ’s explicit control over the curve, adding further downward pressure on the yen.

The BoJ seems to be heading for minimal adjustments. The prospect of the bank maintaining this position on the yield curve going forward has increased as major central banks have taken a firmer stance on current bond market dynamics. With the widening yield spreads, which set the tone for a potentially cheaper yen, speculations on this decision have agitated investors in Tokyo for several weeks.

No significant changes in the BoJ’s policy framework are expected, which limits the impact on the yen in the medium-term. The continuation of the current BoJ monetary policy is aimed at stabilising markets and allowing Japanese companies to borrow at low rates. Expect Japan’s economy to improve as the effects of the pandemic weaken, supported by the country’s exports, accommodative financial conditions and government budget support.