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The yen tumbled to a fresh 24-year low after the Bank of Japan pledged to press on with its ultra-loose monetary policy, but quickly reversed, triggering speculation that Japanese authorities had intervened.
The BoJ’s decision has exacerbated a global divergence in yields after the Federal Reserve implemented a third consecutive 0.75 percentage point rate rise on Wednesday. Following the announcement, the Japanese currency dropped to ¥145.36 against the dollar, but immediately dipped back to ¥143.55 over the space of three minutes.
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, showing no willingness to let bonds trade in a wider band.
The increase in 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.
It expects with greater confidence than its counterparts in Europe and the US that the latest bout of inflation will be transitory and that it needs to continue supporting the economy with monetary easing measures.
“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 BoJ said.
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 sense of alarm about the yen’s sharp fall against the dollar.
In the past, such checks have preceded an intervention by the Ministry of Finance to control the exchange rate.