The Zhitong Finance App learned that the Bank of Japan kept the benchmark interest rate unchanged near zero on Friday, and emphasized growing confidence that Japan's inflation will continue to hit the 2% target in the next few years, suggesting that it is preparing to raise Japan's borrowing costs later this year rather than immediately. Overall, the Bank of Japan expects the current relaxed financial environment to continue. The yen once fell to around 156.8 against the US dollar, hitting a new low in 34 years.

The Bank of Japan also adheres to the guidelines set out in March and continues to buy Japanese government bonds at the current rate to support yields. This has crushed the hopes of some bond traders. They originally thought that the Bank of Japan might soon drastically reduce the scale of purchases, partly to slow the decline in the yen exchange rate.

Bank of Japan Governor Kazuo Ueda said in public statements several times that he hopes to raise interest rates at a gradual and slow pace after the Bank of Japan ended its negative interest rate policy last month and raised interest rates for the first time since 2007. He does not want to put too much pressure on the stagnant Japanese economy.

Furthermore, Japanese foreign exchange officials have stepped up their verbal intervention warning against the excessive weakness of the yen, and business leaders have amplified their concerns and implicitly pressured the Bank of Japan not to further exacerbate the yen's decline. The yen is already the currency with the biggest decline among major currencies this year.

The following are important excerpts from Bank of Japan Governor Kazuo Ueda's speech at the post-meeting press conference.

On the expected aspects of monetary policy

“As for our future monetary policy guidance, this will depend on actual economic and price developments in Japan. We will carefully examine the economy, prices and their risks, and set short-term interest rates at every policy meeting.”

“We can adjust the extent of monetary easing if the potential inflation trend is in line with our predictions. If the economy and prices are overadjusted, this may also be a reason to change policies.”

On the impact of the weak yen on the Bank of Japan's monetary policy

“Monetary policy does not directly target the yen exchange rate. However, exchange rate fluctuations may have a significant impact on the Japanese economy and prices. If the yen trend has an impact on the Japanese economy and prices that are difficult to ignore, it may become a reason to adjust monetary policy.”

“When measuring potential inflation data, we don't just look at a single data. We will focus on the various indicators and economic factors behind price changes, such as economic output gaps and inflation expectations.”

“As of now, the weak yen exchange rate has not had a significant impact on potential inflation. But overall, commodity prices continue to rise, and the possibility that inflation is in line with our expectations is rising... we may see a second round of cost-driven inflation.”

“The effects of yen movements are usually temporary. However, the possibility that this impact will prolong is not zero. For example, if rising inflation affects wage negotiations next spring, it could have a more lasting impact on potential inflation. This is not to say we need to wait until the outcome of next year's wage negotiations becomes clear. If we can anticipate this impact, we can change our monetary policy.”

The yen and cost-driven inflation

“Depending on the extent of cost-driven inflation, a weak yen may cause real income in Japan to fall, putting pressure on consumption. However, we expect nominal wages to continue to rise, and the gradual dissipation of cost pressure will lead to an increase in real wages. We expect Japan's consumption scale to increase in the future.”

Is a weak yen good or bad for the economy?

“The weak yen did have an impact on demand, but it also had some positive effects. This, in turn, will determine the potential inflation trend in Japan in the medium to long term.”

The government bond purchase plan is approximately 6 trillion yen per month

“There have been no changes from the March policy statement. As for day-to-day purchasing operations, we have given the marketing department some discretion. Today, the Bank of Japan Management Committee has no objection to continuing to buy Japanese treasury bonds at the current rate of about 6 trillion yen per month.”

Interest rates are rising to levels considered neutral to the economy

“We haven't reduced the level of neutral interest rates as we had hoped before, so we hope to do that soon. As we gradually raise interest rates, it is also important to observe the impact of these measures on the economy. Japan hasn't experienced a drastic rate hike in the past 30 years, so we don't have enough data. We have to be careful. On the other hand, if we move too slowly, we may be forced to act abruptly, causing a sudden market shock. We want to try to strike the right balance.”