The Bank of Japan kept interest rates unchanged at the end of the two-day policy meeting, while simplifying debt purchases and policy wording, pushing the yen down to a 34-year low.

The Bank of Japan issued a succinctly worded statement on Friday, announcing that it would maintain the benchmark interest rate range of 0% to 0.1%, in line with economists' general expectations. The bank did not signal a reduction in debt purchases; instead, it said it would buy debt in accordance with the March decision.

Looking ahead, the bank predicts that inflation will remain above or near the 2% target until the 2026 fiscal year, and the inflation rate for the current fiscal year is expected to be 2.8%. The bank said that if the forecast is realized, it will adjust the policy, and emphasized the view that it is on track to raise interest rates again.

The decision to stay on hold and the latest economic forecasts did not provide much support to the yen. The yen fell below the 156 mark against the US dollar for the first time since 1990. Governor Kazuo Ueda said at a press conference after the meeting that although the exchange rate may be an important factor affecting inflation, the weak yen has not had a significant impact on potential price trends. After Kazuo Ueda made this statement, the yen fell to an intraday low of 156.82 against the US dollar in response.

After that, the yen fluctuated sharply. At one point, it changed from decline to increase, then jumped briefly to 154.99. Investors are on high alert for any rapid rebound that may occur in the yen. At the same time, they are worried that the Japanese authorities may not confirm intervention. Some cases of extreme backlash in the past have been attributed to algorithmic trading.

Exchange rate concerns

The inflation index favored by the Federal Reserve will be released later on Friday, which may become another catalyst affecting the trend of the yen against the US dollar. The Federal Reserve will also hold an interest rate meeting next week.

When it comes to planning policy lines, Ueda and Osamu face a dilemma. After ending the negative interest rate policy last month and raising interest rates for the first time since 2007, he expressed his hope to gradually push forward interest rate increases.

At the same time, he doesn't want to put too much pressure on the economy; the Japanese economy is estimated to have contracted in the first quarter. This made market participants expect that the policy would not change in the short term, which increased the pressure on the yen to weaken.

Japanese foreign exchange officials have raised their warning about the excessive weakening of the yen, and business leaders have also expressed deeper concerns and vaguely pressured the Bank of Japan not to further fuel the yen's decline. The yen's performance this year is already at the bottom of the major currencies.

One focus of attention at this meeting was the Bank of Japan's position on debt purchases. Prior to the meeting, some analysts believed that the reduction in debt purchases might be used as a signal to release hawkish tendencies to ease the pressure on the yen.

However, market participants saw no clear signs that the local media center will reduce the scale of debt purchases. The Bank of Japan removed the 6 trillion yen figure and removed the statement that it would continue to buy roughly the same amount of bonds, but added that its position was basically the same as in March.

After the Bank of Japan ended its yield curve control policy last month, Kazuo Ueda stated that the interest rate level will fundamentally be determined by the market.