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BOJ keeps rates steady as market awaits Kuroda speech

Governor to begin second term, while two deputies end theirs

Bank of Japan (Photo by Nozomu Ogawa)

TOKYO -- The Bank of Japan said on Friday it was holding interest rates steady, while the market awaited Governor Haruhiko Kuroda's speech at a news conference later in the day.

The BOJ's policy board voted 8-1 to keep the benchmark interest rate steady at -0.1%. In addition, the BOJ said it will continue to keep the yield on 10-year Japanese government bonds, or long-term interest rates, near 0%.

To hold rates at that level, the central bank will keep buying JGBs at a pace that will increase its holdings of the bonds by about 80 trillion yen ($750 billion) a year.

The central bank unanimously voted to maintain its asset purchasing targets for exchange traded funds and Japan real estate investment trusts. Currently, the BOJ is adding about 6 trillion yen of ETFs and about 90 billion yen of J-REITs to its balance sheet per year.

While the government on Thursday made an upward revision to gross domestic product for the quarter ended December, the BOJ maintained its view on the economy, saying it was "expanding moderately, with a virtuous cycle from income to spending operating." It expects this moderate expansion to continue.

Cabinet Office data showed Thursday that the economy grew at an annualized 1.6% in October-December, up substantially from a preliminary reading of a 0.5% expansion.

The BOJ action on Friday was in line with market expectations, and did not have much impact on markets, which were dominated by risk-on investments due to U.S. President Donald Trump's sudden decision to meet North Korean leader Kim Jong Un. The market is awaiting Kuroda's news conference scheduled for 3.30 p.m. local time.

Kuroda is set to begin his second five-year term from April, but deputy governors Hiroshi Nakaso and Kikuo Iwata will end their terms on March 19, making this their final appearance in their current posts. During their five-year tenures, they were party to a policy roller-coaster ride, from quantitative and qualitative easing, to negative interest rates and yield-curve controls.

For now, all eyes are on whether Kuroda will exit from the policy of monetary stimulus during his second term. On March 2, Kuroda said the BOJ's board members expect price rises will reach 2% around fiscal 2019. "If this happens, there's no doubt that we will consider and debate an exit."

His words sent the yen higher and triggered a bond selloff. Kuroda was subsequently forced to clarify his stance, saying, "I have no intention to explore any concrete debate on an exit."

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