The BoJ voted eight to one to maintain the official yield curve control (YCC) settings, but introduced a greater degree of flexibility that essentially widens the trading band by 50bps to +/- 1%. 

Policy rate was maintained at -0.10% and the target for 10-year JGB yields was maintained at 0% with an official +/-0.5% trading band as a guide rather than the previous rigid limits. 

Markets whipsawed in response to an initial media leak and then to the BoJ statement announcing it would keep the 0.5% band but apply a 1% cap which led to some confusion.

During the press conference, Governor Ueda focused on the JGB market functioning and continued to express uncertainties over the outlook for wage and price pressure, emphasizing that this was not a step towards policy normalisation. 

We expect inflation pressures to ease over the course of H2 2023. Weakening activity in the US and other trading partners will likely weigh on Japanese growth and inflation, diminishing the need for further YCC adjustments.

However, without clear and effective communication, there is a risk that the BoJ may face further bouts of market speculation.

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