Bank of Japan Keeps Monetary Policy on Hold as Economic Outlook Brightens

The Bank of Japan (BOJ) kept interest rates on hold Thursday amid signs that ultra-loose monetary policy was breathing new life into the world’s third-largest economy.

The BOJ voted to keep its overnight interest rate at -0.1%, unchanged since early 2016. Officials also pledged to continue purchasing Japanese government bonds so that the 10-year yield remains at 0%.

In doing so, the central bank upped its GDP forecast for the next two fiscal years, but said CPI inflation would expand slower than previously expected.

Japan’s economy has long struggled with sluggish growth and deflation, prompting Prime Minister Shinzo Abe to unleash a torrent of stimulus measures shortly after coming to office in 2012. The three arrows of Abenomics include monetary easing, fiscal stimulus and structural reforms.

After years of mixed results, the BOJ shifted course in September 2016 by placing yield-curve targeting at the center of its agenda.

Japanese Economy Gaining Traction

Japan’s gross domestic product (GDP) has expanded for five straight quarters, the longest stretch of uninterrupted growth in over a decade. The country also posted its first annual surplus for fiscal 2016, as declining energy prices lowered the value of oil imports. Inflation has also improved, but remains well below the central bank’s 2% target.

Financial Markets Calm After BOJ Press Release

Asian markets were mostly calm after the BOJ decision, with Japanese stocks continuing their upward trajectory. Japan’s Nikkei 225 Index was up 0.4%. Chinese stocks were also off to a positive start, with the Shanghai Composite Index gaining 0.3%. The benchmark gauge surged 1.4% on Wednesday.

The yen held near three-week highs against the dollar, with the USD/JPY exchange rate hovering around 112.00.

Cryptocurrencies, which are largely uncorrelated with monetary policy or conventional assets, traded higher overnight.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi