Following the results of its June meeting, the Bank of Japan again left the policy parameters unchanged, and signaled that, if necessary, it would announce additional easing measures to support the economy, which is showing a slow recovery after the coronavirus.
The Bank of Japan stopped the interest rate at -0.1%, and also stated that it will continue to buy an unlimited number of Japanese government bonds to maintain the yield of 10-year bonds around 0%. Thus, the Bank of Japan did not follow the example of other key Central Banks, which are aggressively tightening policy to combat high inflation.
In addition, the Bank of Japan confirmed that it will continue with quantitative and qualitative monetary easing with yield curve control, with an intention to achieve the inflation target of 2%, as long as it is necessary for maintaining the target in a stable manner.
Commenting on the situation in the foreign exchange market, namely the recent fall of the yen to a 24-year low against the US dollar, the Bank of Japan said it would "closely monitor" how exchange rate changes could affect the economy.
"We should closely monitor the impact that the movements of financial and currency markets may have on the economy and prices of Japan," the Bank of Japan said.
The yen tumbled as much as 1.4% and the benchmark 10-year Japanese government bond yield fell after the BOJ's policy decision to remain a dovish outlier.
Economists note that the Bank of Japan's policymakers will have to make a difficult choice: since inflation in Japan is much lower than in Western economies, the Central Bank's attention is focused on supporting the still weak economy with low rates, but the dovish policy caused a sharp drop in the yen, damaging the economy, heavily dependent on imports of fuel and raw materials.