The Bank of Japan kept interest rates unchanged on Friday but said it would trim bond buying in the future to allow long-term interest rates to move more.

At the end of its two-day policy meeting, the central bank said it would continue to buy government bonds at the current pace. But it decided to come up with a specific plan to trim purchases for the next one to two years, at a subsequent policy-setting meeting in July.

Yields on government bonds fell on the news, while the yen hit one-month lows against the dollar.

 

QUOTES:

TAKAYUKI MIYAJIMA, SENIOR ECONOMIST AT SONY FINANCIAL GROUP, TOKYO

"Today's decision suggests that the BOJ is very careful about reducing the bond buying amounts, which means the central bank is also cautious about raising rates. It has become less likely that the BOJ will raise rates in July."

 

CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE

"JPY suffers after BOJ was perceived to be in no hurry to normalise policies. It is likely that USD/JPY may challenge previous high at 160 and that should see heightened risks of intervention. But intervention is at best an option to slow the pace of depreciation and not a tool to reverse the trend.

"For USD/JPY to turn lower more meaningfully it would require the kindness of the greenback or for BOJ to signal an intent to normalise urgently. None of this seems to happen and the path of least resistance for USD/JPY is to the upside."

 

HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO

"It is a surprise that no decision was made on the reduction of bond purchases this time. At the next meeting, the BOJ said it would decide on a specific plan for the next one to two years. Therefore, it is considered that the result was somewhat dovish. For the FX market, this is likely to be a cause of the yen's depreciation."

(Reporting by Reuters Asia markets team; Editing by Sam Holmes)