• The Bank of Japan maintained its record-low interest rates on Wednesday.
• The central bank did not alter its advice, which permits a 50 basis point range.
• Analysts claim the decision did not successfully address market distortions.

In defiance of market expectations that it would gradually wind down its enormous stimulus programme in the midst of intensifying inflationary pressure, the Bank of Japan maintained its record-low interest rates on Wednesday, including the 0.5% cap on the yield on 10-year bonds.

The BOJ maintained its yield curve control (YCC) targets, set at -0.1% for short-term interest rates and about 0% for the 10-year yield, at a two-day policy meeting.

The central bank did not alter its advice, which permits a 50 basis point range on each side of its 0% objective for the yield on 10-year bonds.

The BOJ’s unexpected decision to quadruple the yield band last month was followed by the decision, which analysts claim did not successfully address market distortions brought on by its significant bond purchases.

The unexpected decision to maintain current policy settings surprised the markets and caused the dollar to soar over 2% against the yen, its highest one-day percentage increase since June 17.

Since its implementation in 2016, the BOJ’s yield cap has been put to its greatest test. Rising inflation and the likelihood of higher salaries gave traders an excuse to challenge the yield ceiling by engaging in aggressive bond selling.

For eight consecutive months, Japan’s core consumer inflation rate exceeded the BOJ’s 2% target as businesses increased their prices to pass on to consumers higher raw material costs.

According to a poll, data that will be released on Friday will likely indicate that inflation reached a new 41-year high of 4.0% in December. Analysts anticipate that price increases will reduce later this year as a result of recent declines in global commodity prices.

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