BOJ keeps yield control policy unchanged, yen slumps

The Japan's central bank also made no change to its guidance

TOKYO (Reuters) - The Bank of Japan on Wednesday maintained ultra-low interest rates, including its 0.5% cap for the 10-year bond yield, defying market expectations it would phase out its massive stimulus programme in the wake of rising inflationary pressure.

At a two-day policy meeting, the BOJ kept intact its yield curve control (YCC) targets, set at -0.1% for short-term interest rates and around 0% for the 10-year yield, by a unanimous vote.

The central bank also made no change to its guidance that allows the 10-year bond yield to move 50 basis points either side of its 0% target.

The decision follows the BOJ s surprise move last month to double the yield band, a tweak that analysts say has failed to correct market distortions caused by its heavy bond buying.

Markets had anticipated a possible change to policy at the meeting. The decision to keep settings unchanged sent the dollar surging nearly 2% against the yen, its biggest one-day percentage jump since June 17.

"I rather they abandon, or don t do anything at all," said Christopher Wong, currency strategist at OCBC in Singapore.

"With expectations running high, a no move would disappoint JPY bulls and weakness can return. But this is likely to be temporary."

The market s focus now shifts to the next meeting in March, which will be the final one Governor Haruhiko Kuroda chairs before his term ends in April, Wong said.