Bank of Japan to avoid another yen fall

Bank of Japan Governor Haruhiko Kuroda said on Friday that the central bank plans to keep the minimum rates. The regulator is hoping to prevent a dramatic yen fall, causing intervention in foreign exchange markets. 

According to 49 economists surveyed by Bloomberg, Kuroda and other board members stand to maintain negative interest rates in the country. This would mark the latest hold on the minimum rate among the world's central banks. Analysts said the regulator may also announce a 0.25% cap on 10-year government debt and asset purchases.

The European Central Bank (ECB) is expected to hike interest rates on Thursday. Next week, a similar decision is coming from the U.S. Federal Reserve (Fed). These measures would highlight the Bank of Japan's unique status with the regulator sticking to monetary easing. The consequence is likely to be a dramatic drop in the yen.

There are many ways to interpret Kuroda's statements, but the central bank needs to find a balance between further monetary easing and the risk of yen weakening. 

The BOJ is publishing its economic forecasts for the next quarter of 2022. Despite expected growth of inflation, the country's rising prices won’t exceed 2%. 

The rate set by the central bank is likely to remain unchanged, Bloomberg Economics economist Yuki Masujima noted. The target for core inflation is 2%. Therefore, today's inflation rate (3%) is not enough to tighten monetary policy. A steady wage growth is primarily needed. 

Experts scrutinize Kuroda's press releases to make predictions about yen moving. Economists at Credit Suisse said the Bank of Japan would abandon its easing policy in the future. The reason is growing currency pressures. 

The rapid yen weakening has a negative impact on the country's economy. As a result, the head of the Central Bank has to monitor yen fluctuations. 

Currently, the price growth in Japan has reached 3%. Thus, inflation forecasts in 2022 are also raised. Analysts report a likely upward revision of indicators for the next year as well, in order to assess the sustainability of price growth.