BOJ keeps rates steady, to decide on bond buying cuts at next meeting

Investing.com-- The Bank of Japan kept interest rates steady as widely expected on Friday, and said it will only decide on how to reduce its bond purchases at its next meeting. 

The BOJ left its benchmark short-term rate at 0.1%, as widely expected, leaving the rate unchanged after a historic hike in March. 

The central bank also announced no near-term changes to its bond buying activities, somewhat disappointing market expectations for an immediate change. Instead, the BOJ said it will meet with market participants and present a plan to reduce its bond purchases at its next meeting in end-July. 

The BOJ said it will hold meetings with commercial banks group, securities firms groups and buy-side groups at unspecified dates to help decide on plans to reduce its bond buying activities. 

Japanese stocks rose on the prospect of policy remaining looser for longer, with the Nikkei 225 index rising 0.5% after trading sideways earlier in the day. The Japanese yen weakened sharply, with the USDJPY pair, which gauges the amount of yen needed to buy one dollar, rising 0.6%.

The central bank had hiked rates for the first time in 17 years in March, and had ended its yield curve control policy. The BOJ had also flagged plans to eventually scale back bond purchases, but gave no concrete timeline on the matter. 

The BOJ’s decision to keep bond purchases unchanged in the near-term comes amid recent weakness in the Japanese economy, which shrank more than expected in the first quarter.

This, coupled with a series of languid inflation readings, had raised doubts over just how much headroom the central bank has to actually tighten policy. Markets were also uncertain over the timing of the BOJ’s next rate hike, with the bank offering scant cues on the matter. 

The BOJ stuck to its outlook that inflation will pick up in the coming year, and that it saw a “virtuous cycle” between wages and prices intensifying this year.