Fundamental Comment

Yen advances as BOJ keeps monetary policy on hold

Yen advances as BOJ keeps monetary policy on hold

The Japanese yen advanced versus the U.S. dollar on Thursday after the Bank of Japan opted to leave its monetary policy on hold.

The yen traded higher against the green currency at 107.95 after hitting a high of 107.78, halting its fall over the previous eight sessions.

Japan's central bank has decided to hold monetary policy, in accordance with expectations, but called for a review of prices and economic developments more thoroughly at its October meeting. That was few hours of the Federal Reserve’s interest rate cut by 25 basis points.

The BOJ left its short-term interest rate at -0.1%, the 10-year government bond yield target at zero and kept the quantitative easing program at the same current pace of 80 trillion yen per annum.

Seven members within the Central Bank of Japan voted in favor of standing pat on interest rates amid two members dissenting from the majority.

However, the BOJ said it would review the economy and inflation in the next session, which begins October 30. In addition, it needs to pay more attention to the risk of losing momentum towards the inflation target of 2 percent.

Some analysts believe that the BOJ’s firepower has been exhausted, while the side effects of the stimulus program are piling up.

Finally, the Bank of Japan insists in its statement that it will not hesitate to add incentives if they do not meet their target of reaching the inflation rate to 2 percent.

The U.S. dollar gained to a high of 108.47 on Wednesday, the highest level since August 1, as the Fed Powell’s remarks lowered expectations of future monetary easing.  

Later in the day, U.S. Philly Fed manufacturing index may show a retreat to 10.9 in September from 16.8 in August.

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