Following its June meeting, the Bank of Japan kept its short-term policy rate target in a range of 0-0.1% by an anonymous vote. Meanwhile, the central bank said it would soon begin reducing its large-scale purchases of Japanese government bonds to ensure that long-term interest rates would be formed more freely in financial markets
Despite the fact that the Bank of Japan will continue to buy bonds at the current pace (by about 6 trillion yen per month), it decided to outline the details of its reduction plan for the next one to two years at its July meeting. The central bank warned that it would gather the opinions of market participants before deciding on a long-term reduction plan at its next meeting.
The Bank of Japan's efforts to normalize monetary policy come as other major central banks seek to lower rates. However, the normalization of Japan's still soft monetary policy is overshadowed by weak consumption and doubts about the Bank of Japan's view that sustained domestic demand will keep inflation on the right track to reach the 2% target for a long time. But the fading prospects for sustained rate cuts in the United States may continue to put pressure on the yen, complicating the Bank of Japan's policy discussions. The collapse of the national currency has led to an increase in import prices, which, in turn, increases the cost of living and harms consumption. Some analysts believe that the reduction in bond purchases by the Bank of Japan is one of the tools that can slow the decline of the yen, allowing long-term interest rates to rise more freely. Overall, the Japanese currency remains near its lowest level in more than three decades against the US dollar, despite the recent government intervention to buy the yen. Since the beginning of today's session, the yen has fallen 0.7% against the US dollar, to 158.10, breaking above the 158 level for the first time since May 1.