Japan's central bank stays pat on monetary policy despite yen's spike, Brexit concerns

The Bank of Japan (BOJ) on Thursday opted to leave its monetary policy unchanged and maintained its view that the economy is recovery moderately despite the yen's recent appreciation and concerns over Britain's possible exit from the European Union.

Following a two-day policy meeting, the central bank said that it had decided to stay pat on its policy to wait and see how the impact of it plunging its interest rate into negative territory to increase liquidity and investment in the market pans out and amid jitters over Britain's possible exit from the European Union.

"The economy has continued its moderate recovery trend," the BOJ said in a statement, keeping its basic assessment largely unchanged since last month. The central bank did note however that exports have been under pressure due to a slowdown in some emerging economies and slumping demand.

The bank also said it will continue to increase the country's base money supply at an annual pace of around 80 trillion yen (763 billion U.S. dollars) through its asset purchasing program and will continue with its 0.1 percent charge on part of the reserves held by financial institutions.

Some of the central bankers were quoted as saying Thursday that the decision to hold fire on any policy changes was made at a trying time as the U.S. Federal Reserve stating it has no immediate plans to hike its interest rates saw Wall Street take a tumble and investors fleeing from riskier assets like stocks and ploughing into the yen, widely considered a safe haven.

As such, the dollar dropped to the mid-104 yen zone on Thursday, the lowest level since September 2014, causing concern among Finance Ministry officials, who repeated their recent concerns about "one-sided" and "rapid" currency moves, intimating that short-term speculators may also be pushing up the yen's value.

A strong yen is not welcomed by markets here as Japan continues to be an export-led economy and a weaker yen sees export-linked companies' profit margins widen when funds are repatriated from oversees when the exchange rate is favorable. When the yen is high, the opposite situation occurs and profit outlooks become murky and investor sentiment is diminished.

The strength of the yen also does little to support the BOJ's efforts to reverse deflation and the damage to corporate earnings threatens to further negate the efficacy of Prime Minister Shinzo Abe's "Abenomics" economic policy mix.

Abe has delayed a planned consumption tax hike by two and a half years until October 2019, as the economy barely escaped a recession in the January-March quarter, but some economists believe that the BOJ will alter its policy following this summer's upper house election, at which time Britain's decision over the European Union will also be known. Enditem