Photo/Illutration Bank of Japan Governor Haruhiko Kuroda at a Jan. 18 news conference (Pool)

The Bank of Japan’s decision to maintain its ultra-loose monetary policy stunned investors and sent the yen plunging against foreign currencies.

The central bank at a Jan. 18 meeting kept in place its interest rate measures, which could further widen perception gaps between it and the market.

Expectations for a revision of the policy were triggered in December when the central bank suddenly changed its stance on long-term interest rates.

Market players speculated that long-term interest rates would rise even further, and many investors began selling their Japanese government bonds.

The thinking was that a further interest rate increase would push down bond prices, leaving investors with an opportunity to secure gains by buying back the bonds at lower prices.

The BOJ, for its part, began buying up government bonds to prop up the interest rate.

Through Jan. 18, the central bank had bought long-term bonds worth about 17 trillion yen ($132.5 billion), breaking the monthly record for such purchases.

At his Jan. 18 news conference, BOJ Governor Haruhiko Kuroda said he found nothing wrong with the large government bond purchases by the central bank.

But the latest trends led some investors to say the BOJ had lost its ability to control long-term interest rates.

Others were already looking to April when Kuroda’s term as BOJ governor ends.

Tetsufumi Yamakawa, chief economist at Barclays, said he expected the BOJ to assess the positive and negative effects of its long policy of keeping interest rates low at its next policy meeting in March.

The central bank could then move toward another policy adjustment from April under a new governor, he said.

While the long-term interest rate did decline on Jan. 18 after news emerged of the BOJ’s decision, other market players were forecasting another rise in anticipation of the new governor taking over.

According to sources, government officials have also begun considering a new course for monetary policy under Kuroda’s successor.

In 2013, the government and BOJ issued a joint statement setting an inflation goal of 2 percent, which became the starting point for the long period of ultra-loose monetary policy.

But government officials are discussing whether to revise that stance in line with the selection of a new governor, sources said.

One possible revision would be to change the inflation goal from “as soon as possible” under the 2013 joint statement to a more medium- or long-term goal.

Such a revision would make it easier for the BOJ to adjust its interest rate policy even if inflation had not yet reached the 2-percent goal.

(This article was written by Takehiro Tomoda, Kyosuke Yamamoto and Shinya Tokushima.)

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