Bank of Japan Governor Kazuo Ueda arrives to interview a small group of journalists in Tokyo on May 25, 2023.

Richard A. Brooks | AFP | Getty Images

Japan’s central bank maintained its ultra-loose monetary policy on Friday, moving to support fragile economic growth amid swirling global uncertainty.

The Bank of Japan kept its short-term interest rate target at -0.1%, in line with economists’ expectations, and made no changes to its yield curve control policy after the two-day session.

The Japanese yen it fell after the decision and fell as much as 0.3% to around 140.70 per US dollar before paring losses. The Nikkei 225 similarly, it reversed earlier losses to creep higher, while yields on 10-year Japanese government bonds fell.

“With extremely high uncertainty surrounding economies and financial markets at home and abroad, the Bank will patiently continue to ease monetary policy while responding nimbly to developments in economic activity and prices as well as financial conditions,” the Bank of Japan said in its policy statement.

Growth and inflation outlook

“It is highly likely that the pace of growth will gradually slow down,” the Bank of Japan said. “The year-over-year rate of CPI (all items excluding fresh food) growth is likely to slow by the middle of fiscal 2023, as the pass-through effects of rising import prices to consumer prices fade.”

Governor Kazuo Ueda is under pressure with inflation well above the BOJ’s 2% target. Wage inflation is also expected to rise after workers received their biggest pay rise in 25 years following negotiations with top Japanese companies in March.

“Despite positive surprises on the growth and inflation fronts, we believe the BoJ will maintain the status quo for another year to assess whether the economy is on track to achieve 2% inflation during Governor Ueda’s five-year term,” Shigeto Nagai, head of Japan economics at Oxford Economics, he wrote in a note.

“In his first speech as governor, Ueda emphasized the risk management approach to policymaking and the high costs of premature tightening,” Nagai added.

The Bank of Japan’s short-term interest rate target has remained at -0.1% since it was first adopted. negative rates in 2016 fight the chronic deflation that has plagued Japan’s economy for decades and jump-start economic growth. It is sticking to current policies to cope with growth it still sees as fragile.

Something fundamental in Japan's inflation environment is changing, says portfolio manager

Source Link