The Bank of Japan today announced a minor tweak to its unconventional policy of controlling government bond yields, stopping short of expectations and sending the yen lower.
While most other major central banks have hiked interest rates in a bid to tame prices, the Bank of Japan has stuck with sub-zero borrowing costs to support the world's third biggest economy.
Instead it has sought to keep interest rates at ultra-low levels by buying up huge quantities of government bonds in an attempt to keep a lid on yields.
In July the Bank of Japan raised to 1% the de-facto upper limit of a tolerated band in which it allows yields to move.
A media report today said officials might widen this as they see inflation rising and the yen tumble against the dollar but the Bank of Japan said only that it "will conduct yield curve control with the upper bounds of 1% for those yields as a reference".
The Bank of Japan also hiked its core inflation forecast - excluding food - to 2.8% from 2.5% for the current fiscal year, and for 2024-25 to 2.8% from 1.9%.
The bank said it "expects that underlying (consumer price index) inflation will increase gradually towards achieving the price stability target of two percent, while this increase needs to be accompanied by an intensified virtuous cycle between wages and prices".
The yen, one of the worst-performing major currencies this year, weakened 0.6% to 149.98 against the dollar after the decision before recovering slightly.
Stephen Innes at SPI Asset Management said that "regardless of this less hawkish outcome than some corners of the market thought, the signal is they are close to shifting policy, which could limit yen's weakness".
