Bank of Japan Maintains Ultra-Lose Monetary Policy, Leaves Rates Unchanged
The Bank of Japan (BOJ) announced on Friday that it will maintain its ultra-loose monetary policy and keep interest rates unchanged. The central bank cited the “extremely high uncertainties” surrounding the domestic and global growth outlook as the reason for its decision.
In its policy statement after the September meeting, the BOJ stated that it will maintain short-term interest rates at -0.1% and cap the 10-year Japanese government bond yield around zero, which was widely expected. The central bank emphasized its commitment to monetary easing and stated that it will carefully respond to developments in economic activity, prices, and financial conditions.
During the previous policy meeting in July, the BOJ loosened its yield curve control to allow longer-term rates to move in tandem with rising inflation. This change was seen as a departure from the yield curve control policy implemented by Governor Kazuo Ueda’s predecessor. Economists adjusted their forecasts for a quicker exit from the BOJ’s ultra-loose monetary policy, expecting it to occur sometime in the first half of 2024.
Despite core inflation surpassing the BOJ’s target of 2% for 17 consecutive months, officials remain cautious about exiting the policy due to the lack of sustainable inflation. The BOJ believes that meaningful wage growth is necessary to support household consumption and economic growth, leading to a positive chain effect. Core inflation, which excludes volatile fresh food prices, was at 3.1% in August, aligning with the BOJ’s projection.
Wage growth, output gap, and price expectations are among the factors prioritized by the BOJ as meaningful drivers of inflation. Oliver Lee, client portfolio manager at Eastspring Investments, stated that Japan has the opportunity to transition from a deflationary environment to a more inflationary one, but meaningful and sustained wage inflation is crucial for this transition.
Raising interest rates prematurely could hinder growth, while delaying the tightening of policy further could increase the risks of financial fragility and negatively impact the Japanese yen. Prime Minister Fumio Kishida pledged to support consumers coping with rising living costs and ensure that Japan emerges meaningfully out of deflation with consistent wage growth exceeding the rate of inflation.
Japan’s gross domestic product growth for the April-June quarter was revised down to an annualized 4.8% due to weak capital spending. The BOJ is facing complexities in its decision-making process due to uneven domestic economic data and an uncertain global economic outlook.
This is a breaking news story, and further updates will be provided as necessary.