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BOJ keeps ultra-low interest rates, yield curve control on track The Bank of Japan held interest rates at ultra-low levels on Friday, and maintained its current pace of yield curve control while forecasting an improvement in economic conditions and a downturn in inflation.

The BOJ held its benchmark interest rate at negative 0.1%, and signaled that it will continue to allow 10-year government bond yields to trade within a range of 0.5% to negative 0.5%.

Japanese 10-year bond yields fell 0.5% to 0.424% after the move.

The bank also maintained its current pace of quantitative easing, and said it will continue to purchase exchange-traded funds and Japanese real estate investment trusts.

The BOJ forecast some strength in the Japanese economy, flagging a “moderate” improvement towards the middle of fiscal 2023, and said that the economy will grow at a pace “above its potential growth rate.”

Still, the bank also warned of continuing uncertainties for the Japanese economy, particularly from slowing global growth and continued volatility in commodity prices.

The BOJ’s move on Friday comes largely in line with market expectations, as analysts saw little scope for immediate change in the bank’s dovish stance under new Governor Kazuo Ueda.

Ueda, who has now led the central bank for about two months, had also stated little intent to immediately begin tightening policy. But he has warned that the BOJ will eventually leave behind its ultra-dovish stance in the near future, especially as inflation rises further.

Japanese consumer inflation eased slightly over the past two months, helped mainly by government subsidies on electricity prices. But the reading still remained well above the BOJ’s 2% annual target, with the bank forecasting a resurgence in inflation later this year.

The BOJ’s dovish stance makes it an outlier among major global central banks, which are otherwise hiking rates sharply to curtail rising inflation. The Federal Reserve recently signaled it could hike at least two more times this year, while the European Central Bank raised rates on Thursday and signaled more hikes to come.

This trend has weighed heavily on the yen, which was trading at near seven-month lows to the dollar on Friday. But it has also triggered a stellar rally in Japanese stocks, pushing them to 33-year highs as loose monetary conditions in Japan attracted large amounts of foreign capital fleeing high rates in other countries.

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