The Governor of the Bank of Japan, Kazuo Ueda, announced the continuation of the government bond purchasing program until March 2027 to maintain operational flexibility and market predictability. This move extends the ultra-loose monetary policy, creating a stark divergence from the global trend of interest rate hikes.

Analysis by Qin Ge

Policy Implication: Japan adheres to a zero interest rate to combat deflation risks (core CPI has been below 2% for nine consecutive months), but the ratio of government bond holdings to GDP has surpassed 130%, which may lead to a credit crisis for the yen in the long term;

Market Impact: The widening US-Japan interest rate differential to 4.3% boosts arbitrage trading, and the yen may depreciate to the 170 level (a cumulative decline of 23% this year), while the Nikkei index benefits from foreign capital inflows, rising 12% this year;

Operational Warning: Holding Japanese bonds requires hedging against exchange rate risks, increasing holdings in gold and Bitcoin to hedge against yen depreciation, and avoiding bonds from companies with high debt denominated in yen.