Tokyo (AFP) - Japan's central bank left its ultra-easy monetary policy unchanged Wednesday, bucking heavy speculation that it could again tweak a key lever, and sending the yen plunging.
The announcement after a two-day Bank of Japan meeting saw the yen sink over two percent against the dollar, with the greenback buying more than 131 yen after the decision, from around 128.50 earlier in the day.
Bank officials shocked the market last month by widening the band in which they allow rates for 10-year government bonds to move.
The bank said the surprise decision would "improve market functioning", and the change saw the yen gain ground against the dollar after months of weakening over the gap between Japanese and US central bank policy.
The range set last month has been breached regularly in recent days, intensifying speculation that the BoJ would have to act again.
But policymakers left the yield curve control range intact and said the bank would continue with "large-scale" purchases of government bonds to support the parameters.
Bank Governor Haruhiko Kuroda told reporters he believed the current policy was sustainable, with more time needed to see the effects of last month's tweak.
"We do not believe it is necessary to further expand the fluctuation band for the long-term bond yield," he said.
"What is important is that we support the economy so that businesses can increase wages."
The unchanged policy and the weaker yen also boosted Tokyo stocks, with the key Nikkei index closing up 2.5 percent.
Under pressure
For months, the BoJ has bucked the tightening trend set by global peers and stood its ground on its loose monetary policy, convinced that inflation has not yet taken hold in Japan in a sustained fashion.
Prices have risen over the past year, and while they have not neared the levels seen by other developed economies, Japan's inflation rate is at a 40-year high.
Kuroda, whose term ends in spring, has repeatedly insisted that the price rises are largely temporary and linked to exceptional factors like the war in Ukraine.
"We are not at a point where we can foresee that the two-percent target can be achieved in a stable and sustainable manner," he said Wednesday.
Still, the bank now expects inflation to hit 3.0 percent for fiscal 2022, up from the 2.9 percent it predicted in October.
But it forecast inflation of 1.6 percent the following year, unchanged from its last estimate, rising to 1.8 percent for fiscal 2024, up from 1.6 percent previously.
Last month's policy tweak fuelled speculation that the BoJ would gradually tighten policy, though Kuroda warned then that the move should not be seen as an effective rate hike.
Clifford Bennett, chief economist at ACY Securities, said that while other central banks have hiked rates, "Japan has long been a different story and remains so," especially given uncertain economic growth and low inflation levels.
Other analysts said the bank would be under pressure to move soon.
"Speculation will remain that it will eventually review its policy," said Takahide Kiuchi, executive economist at Nomura Research Institute and a former BoJ policy board member.
"Market focus will now shift to the appointment of a new governor," he told AFP before the decision, noting that the bank needs to "make its policy flexible" whoever is appointed.
The BoJ also revised its growth projections for the world's third largest economy, tipping GDP expansion for fiscal 2022 of 1.9 percent, against a previous forecast of 2 percent.
The following year it now expects 1.7 percent growth, down from 1.9 percent forecast in October, but falling to 1.1 percent in 2024, having predicted 1.5 percent.
