The Bank of Japan kept its ultra-low interest rates unchanged today and stopped short of signalling another hike, pushing the yen to a fresh 34-year low against the dollar.
Officials last month announced the first increase in borrowing costs for 17 years as inflation continued to stick above their 2% target but warned they would take a steady approach to normalising monetary policy.
While widely expected, today's decision had been keenly awaited to see if decision-makers would respond to a drop in the yen that has pushed it to levels not seen since 1990.
The Bank of Japan has been a global outlier in sticking to an ultra-loose policy while other central banks pushed rates up as they fought against surging inflation - causing a wide differential that saw investors push into other currencies.
The standout among them has been the dollar, which has gained even more ground in recent weeks as a string of above-forecast US inflation readings fuels fears the Federal Reserve will keep rates at two-decade highs for longer than hoped.
A weaker yen is good for Japanese exporters but it pushes up the price of imports and the Bank of Japan hiked its inflation forecast for the current fiscal year to 2.8% from 2.4% previously.
In March, inflation excluding fresh food prices stood at 2.6%.
With the currency sitting around three-decade lows against the dollar, speculation has grown that authorities could intervene in forex markets to provide support for the first time since 2022.
Last week Bank of Japan Governor Kazuo Ueda had signalled that it would change monetary policy if the fall in the yen becomes "too big to be ignored".
But comments on the yen from Ueda today "lacked any urgency", Charu Chanana at Saxo said, adding that the Bank of Japan was surprisingly "dovish" again on interest rates.
Finance Minister Shunichi Suzuki warned today that the government was "concerned" about the negative aspects of the weak yen, repeating that authorities will take "all possible measures" if necessary, Japanese media said.
The Bank of Japan has spent vast amounts on bonds and other assets to pump liquidity into the Japanese economy, targeting inflation of two percent that policymakers hoped would fuel growth.
