Bank of Japan to leave policy rates unchanged

At its last meeting, the Bank of Japan sounded the alarm over a decline in price pressures. However, the economy has continued to grow faster than potential and the recent sharp weakening of the yen should have soothed nerves. We expect the Bank to leave both the short-term policy rate and the 10-year yield target unchanged for the foreseeable future. With the yield target taking precedence, the Bank’s asset purchases are likely to slow, but it is important to note that this wouldn’t equate to withdrawal of stimulus.