BOJ keeps stimulus unchanged, maintains inflation outlook

BOJ keeps stimulus unchanged, maintains inflation outlook

BOJ keeps stimulus unchanged, maintains inflation outlook

Governor Haruhiko Kuroda said the central bank wasn't in a position to consider exiting its current policy after the board voted 8-1 to keep interest rates and asset purchases at current levels.

The yen, which had strengthened as the market reacted to the BoJ's view of price expectations, weakened after Kuroda's comments.

USD/JPY now back up to 110.83 while EUR/JPY is now up to 135.86 as the yen gives back some gains following the BOJ announcement earlier to hold monetary policy steady.

The dollar eased against the yen on the tweaks to the inflation outlook, traders said.

"If Trump decides to strike a strong anti-trade stance, it will spark a selloff in global trade-oriented currencies such as the Korean won and the Chinese yuan and eventually weigh on the United States dollar as well", said Viraj Patel, an FX strategist at ING.

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The central bank said while Japan's economy was expected to expand moderately, it will maintain its massive stimulus program for as long as needed to hit its inflation target.

Despite an on-year rise in wholesale prices, however, the BOJ is still struggling to convert the effects into a significant rise in inflation as business confidence remains low with companies concerned that hiking their prices will repel consumers and adversely hit their bottom lines. Expectations that the European Central Bank may withdraw its stimulus gained momentum earlier this month after the accounts of its last policy meeting showed it could shift its policy communication early this year.

With the economy growing and inflation slowly but steadily rising, some investors had started to bet that the BoJ is nearing the point where it begins to normalise its ultra-loose monetary policy.

Japan got a taste of the challenge when a cut in the BOJ's bond buying pushed up global yields, and Kuroda's positive remarks on the economy drove up the yen.

"The decision makes it clear that the BOJ doesn't want any noise about early tightening now", said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG and a former BOJ official. "The BoJ could have raised its growth forecast, given recent economic data, but it didn't because it's fearful of fueling speculation of policy normalization".

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Asian stocks looked poised for gains following the stronger lead from Wall Street after US lawmakers reached a deal to end a government shutdown and as earnings reports stateside remained solid. Almost half of those surveyed by Bloomberg said they expected the first move to come later this year.

The BoJ is lagging behind its global peers in normalising policy after years of unprecedented stimulus.

Mike Bell, a global markets strategist at JP Morgan Asset Management said markets may have got a bit ahead of themselves by pricing about a 40% chance of a rate rise this year and he does not expect the European Central Bank to raise rates in 2018.

When both food and energy prices are excluded, however, consumer prices rose just 0.3 percent in November.

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