The Bank of Japan said it was sticking to its ultra-loose monetary policy after the US Federal Reserve unveiled a third consecutive large interest rate increase, sending the yen to a new 24-year low.
Following the Fed’s announcement, the yen dropped to ¥145.36 against the US dollar, but it recovered to ¥143.55 over the space of three minutes.
The move fuelled speculation that Japanese authorities had intervened, but a senior ministry of finance official denied an intervention had been conducted, according to local media.
The BoJ on Thursday kept overnight interest rates on hold at minus 0.1 per cent. It said it would conduct daily purchases of 10-year bonds at a yield of 0.25 per cent.
The BoJ’s decision has exacerbated a global divergence in yield, s after the Fed implemented a 0.75 percentage point rate rise on Wednesday and indicated it would keep policy tight as it battles inflation.
The suddenness of the yen’s reversal raised the question of whether Japan had intervened to strengthen the yen for the first time in more than two decades. Foreign exchange analysts had argued this week that intervention was becoming increasingly likely as the yen tested new lows.
Japan’s core consumer prices, which exclude volatile food prices, hit 2.8 per cent in August, rising at the fastest pace in nearly eight years on the back of soaring commodity prices and the weaker yen.
But the BoJ has long argued that the underlying demand in the Japanese economy remains weak and that its monetary policy is not targeted at the foreign exchange rate.
“There remain extremely high uncertainties for Japan’s economy, including the course of Covid-19 at home and abroad and its impact, developments in the situation surrounding Ukraine and developments in commodity prices and in overseas economic activity and prices,” the central bank said.
Benjamin Shatil, foreign exchange strategist at JPMorgan in Tokyo said: “The lack of any hint of a shift in signal . . . that policy is adapting to higher price pressures, leaves the door open to further yen downside.”
The BoJ ended a scheme to offer cheap loans to banks financing small and medium-sized companies to survive Covid disruption, but unexpectedly extended other parts of its pandemic-related funding programme.
“In this situation, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices,” it added.
The policy meeting came after BoJ officials last week phoned currency traders to inquire about market conditions in a so-called rate check, illustrating the government’s alarm about the yen’s sharp fall against the US dollar.
In the past, such checks have preceded an intervention by the Ministry of Finance to control the exchange rate.