Bank of Japan keeps interest rates negative while announcing policy review

The headquarters of the Bank of Japan (BOJ) is seen outside the cherry blossoms in Tokyo on March 20, 2023.

Kazuhiro Nogi | afp | beautiful pictures

Bank of Japan keep interest rates unchanged during the first policy meeting of newly appointed Governor Kazuo Ueda.

The decision is in line with economists’ expectations of no change to the benchmark interest rate, which has been kept at -0.1% since the central bank’s implementation. rate below zero in 2016.

The central bank also left its tolerance range on 10-year Japanese government bonds unchanged at 50 basis points above and below its 0% target.

In December, the central bank shocked global bond markets by unexpectedly widening its tolerance for 10-year Japanese government bond from 25 basis points to 50 basis points above and below 0%.

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The Japanese yen weakened around 0.8% to 134.75 against the US dollar following the announcement. Output per JGB 10 years decreased slightly to 0.425%.

Review the policy first

While maintaining current policies, the Bank of Japan said it “decided to conduct a broad review” of its easing measures.

The central bank said the expected time frame for the review is about one to one and a half years.

“Achieving price stability has been a long 25-year challenge,” the central bank said, adding that its monetary easing policies “interacted with and affected broad areas of economic activity, prices and the financial sector of Japan”.

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In a separate outlookThe central bank forecasts inflation for all commodities excluding fresh food and energy to be around 2.5% for fiscal year 2023 and between 1.5% and 2% for 2024 and 2025 .

Ueda was previously emphasize Inflation needs to be “fairly strong and close to 2%” – the central bank’s target – before making any adjustments to yield-curve control.

Abandon YCC?

Despite market expectations that the central bank will widen the yield curve control tolerance margin further or scrap the plan altogether, the central bank has kept its current policies unchanged. mine.

“The bank will continue with QQE(Quantitative and qualitative monetary easing) with Yield Curve Control, which aims to achieve price stability for as long as necessary to sustain it in a stable manner,” it said in its outlook.

It added that the central bank would “not hesitate to take additional easing measures if necessary.”

Amy Xie Patrick, head of earnings strategy at Pendal wealth management, predicts the central bank will abandon YCC rather than widen its tolerance.

“I think the next move they make regarding YCC will be to give up. But the path to that has to be to make the market understand that it’s more their concern with market function than is their concern that inflation will outpace them.” Xie Patrick tells CNBC’s “Street Signs Asia”.

Inflation is still higher than target

Inflation in Japan’s capital city edged higher in April, according to government data released Friday ahead of the BOJ’s decision.

The consumer price index in the Japanese capital rose 3.5% in April, beating forecasts in a Reuters poll of 3.2%. That number is also slightly higher than 3.2% in March.

Excluding fresh food and energy, Tokyo’s consumer price index rose 2.3% in April – slightly above the central bank’s inflation target of around 2%. Inflation in Tokyo is a leading indicator of national trends. Japan’s nationwide core CPI stood at 3.1% in March.

We expect Bank of Japan to maintain yield curve control today, research institute says

Meanwhile, Japan’s unemployment rate rose to 2.8% in March from 2.6% in February, government data showed. This was higher than the Reuters forecast of 2.5% and marked the highest level since January 2022.

The country’s employment-to-applicant ratio was 1.32, lower than the Reuters estimate of 1.34.

Many uncertainties ahead

Hiromi Yamaoka, a former Bank of Japan official and now head of the Futures Research Institute, told CNBC: “Japan’s real economy still has some uncertainties, but at the same time, inflationary pressures. is becoming clearer”. Asia” on the Friday before the announcement.

“It’s a tough situation but the BOJ has to keep an eye on the central bank’s main goal of price stability,” Yamaoka said, but added that the central bank needs to focus more on inflationary pressures. growth rather than the real economy.

To juggle the two, Yamaoka said, “they can’t continue their extraordinary intervention in the JGB market.”


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