BOJ holds rates as inflation aligns with 2% target for first time since 2013

The Bank of Japan kept its policy rate unchanged, with inflation now running in line with its 2% target for the first time since 2013, a milestone that marks a potential shift away from the decade-long ultra-easy stance. The transmission mechanism runs through the rate differential: holding rates while the Federal Reserve and other major central banks remain restrictive keeps the yen-dollar yield gap wide, supporting carry-trade demand for dollar assets and pressuring the yen. Japanese government bonds are most directly exposed, since any hint that yield curve control will be loosened or normalized reprices the long end, while the yen and Nikkei-linked equities react to shifts in capital flows and exporter earnings sensitivity. The next catalyst for traders is the Bank of Japan's upcoming policy meeting and accompanying guidance on the pace of future rate increases, alongside national CPI data that will show whether core inflation is sustaining above target.

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