Japan holds back long-term interest rate hikes

According to Sankei newspaper, from March 29 to 31, Central Bank of Japan bought back Government bonds in unlimited quantities – an additional measure to curb the rise in interest rates.

Immediately after this decision, on the Japanese government bond market on the morning of March 30, the 10-year bond yield was temporarily at 0.225%, or 0.02% lower than the closing price the previous day. Meanwhile, in the foreign exchange market, the movement to buy USD at high interest rates and sell yen with increasing low interest rates.

Experts said that if long-term interest rates continue to be restrained, the risk of Yen will continue to depreciate due to the widening interest rate gap between Japan and other countries.

Central Bank of Japan. (Photo: Reuters)

JiJi news agency said, if necessary, the Bank of Japan will continue to buy government bonds without limit to limit the increase in interest rates. However, in the context of rising interest rates in Europe and the US, interest rate differentials between countries will continue to widen, and the downward pressure on the Yen may increase further.

The yen’s exchange rate against the dollar temporarily fell to a low of 125 yen on March 28 – the lowest level since 2015.

Regarding the restraining of long-term interest rates and the weak Yen, the Mainichi newspaper quoted Mr. Shinichiro Kobayashi – senior researcher at Mitsubishi UFJ Research & Consulting as saying that in the policy of the Bank of Japan, limiting the restriction interest rates will take precedence even if the yen depreciates and import prices rise.

Mr. Kobayashi said that these trends will be a burden on people and go against the Government’s anti-inflation measures.

The Bank of Japan’s policy of curbing long-term interest rates shows the increasingly clear divergence in monetary policy between this country and other countries such as the US and Europe.

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