The Bank of Japan did exactly what it said it would do: nothing. Yet traders were stunned.
The market churn after the Jan. 18 decision to keep policy unchanged, something expected by almost every economist surveyed, might seem a little odd. Blindsided in December by Gov. Haruhiko Kuroda¡¯s yield-curve control tweak, some observers had begun talking themselves into believing that not just further adjustments were possible, but that he was set to wholesale dismantle his decade-long easing program.
Some of this was wishful thinking; others were hoping to force the BOJ¡¯s hand. Nonetheless, Kuroda seemed bemused, as were many domestic observers puzzled by expectations that the central bank would not just tweak, but soon shift to a full-on tightening just as its inflation target comes tantalizingly within reach and crucially before wages have a chance to lock that change in.
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