| Consensus | Actual | Previous | |
|---|---|---|---|
| Change | 0bp | 0bp | 0bp |
| Level | -0.1% | -0.1% | -0.1% |
Highlights
The Bank of Japan said Friday its policy board decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to support gradual economic recovery and guide inflation toward stable 2 percent.
The two-day policy meeting that ended Friday was the last scheduled one for Governor Haruhiko Kuroda, who has led the bank's 'unprecedented' large-scale monetary easing campaign for nearly 10 years based on the central bank's policy coordination agreement with the government as part of a reflationary Abenomics policy mix of aggressive monetary easing, flexible fiscal spending and growth strategies.
BoJ policymakers were initially successful in boosting zero inflation to end 15 years of deflation but have had a tough time keeping the momentum, first hit by a plunge in crude oil prices from 2014 to 2016 and the lingering drag from the sales tax hike from 5 percent to 8 percent in 2014. They are still in pursuit of stable 2 percent inflation that comes with sustainable wage hikes and economic growth.
Before Kuroda's second five-year term ends on April 8, the two deputy governors -- Masayoshi Amamiya and Masazumi Wakatabe -- will also retire at the end of their five-year terms on March 19.
The government will formally appoint economics professor Kazuo Ueda as BoJ governor, as well as Shinichi Uchida, one of the six BoJ executive directors supporting the governor, and Ryozo Himino, a former Ministry of Finance official, as deputy governors. Their nominations were approved by parliament Friday.
No Immediate Policy Shift Expected Under New Governor
During his Diet confirmation hearings, Ueda told lawmakers that it is"necessary and appropriate" to continue monetary easing under the current economic conditions in order to achieve stable 2 percent inflation and help firms raise wages.
Ueda also said there is no immediate need to review the 10-year-old policy coordination accord with the government. The then prime minister Shinzo Abe, who had led his Liberal Democratic Party back to power with a landslide win in December 2012 lower house elections, demanded that the central bank adopt a clear 2 percent inflation target, instead of trying to achieve a stable 1 percent price increase in the long term.
BoJ Keeps Interest Rate Targets, Asset Purchases
The bank's board unanimously maintained its latest decision made in December to allow the yield on the 10-year Japanese government bonds to rise to 0.5 percent from the previous cap of 0.25 percent amid upward pressures arising from aggressive tightening by other major central banks, hoping to revive some of the paralyzed market functions under its yield curve control regime.
The BoJ board confirmed that the bank will continue offering to buy 10-year Japanese government bonds at a fixed rate of 0.5 percent every business day,"unless it is highly likely that no bids will be submitted." The board decided to introduce this new type of market operation in April 2022.
The bank maintained its projection that the upward pressures on the core CPI (excluding fresh food), led by high costs of importing materials and products, are"expected to decelerate toward the middle of fiscal 2023 (starting in April)," noting that the contribution of such price rises to the CPI is likely to wane and the government is providing subsidies to cap retail gasoline and utility prices.
"Thereafter, the rate of increase is projected to accelerate again moderately on the back of improvement in the output gap and rises in medium- to long-term inflation expectations and in wage growth," the bank said, repeating its outlook provided in January. It also noted that the government program to push down energy prices for consumers will taper off toward the middle of fiscal 2023.
The current spike in consumer inflation to around 4 percent is mostly due to elevated energy and commodities costs aggravated by the relatively weak yen. Service prices have been edging up on a slow pace of wage hikes, up 1.2 percent on year in January, compared to a 7.2 percent surge in goods prices.
BoJ Continues to See Japan Economic Recovery Despite Headwinds
The BoJ maintained its assessment on the current conditions, saying,"Japan's economy, despite being affected by factors such as high commodities prices, has picked up as the resumption of economic activity has progressed while public health has been protected from Covid-19."
"Japan's economy is likely to recover, with the impact of Covid-19 and supply-side constraints waning, although it is expected to be under downward pressure stemming from high commodities prices and slowdowns in overseas economies," the bank said, repeating its view presented in the quarterly Outlook Report issued in January.
Looking ahead, the bank repeated its recent risk assessment that"there remain extremely high uncertainties for Japan's economy" including developments in overseas economic activities and prices, the Ukraine war, commodity prices and the course of the pandemic at home and aboard.
"In this situation, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices," the bank said, repeating its recent mantra.
Easing Policy Stance Unchanged
At its two-day meeting that ended at around 11:30 a.m. JST Friday (0230 GMT Friday/2130 EST Thursday), the BOJ's nine-member board decided in a unanimous vote to maintain its overall monetary easing stance under the yield curve control framework that it adopted in September 2016, vowing to keep zero to negative interest rates"as long as necessary" to achieve its 2 percent inflation target in a stable manner.
Under the current framework, the BOJ is keeping the 10-year government bond yield, the benchmark for long-term borrowing costs, at around zero percent by buying"a necessary amount" of Japanese government bonds"without setting an upper limit," and to keep the overnight interest rate at minus 0.1 percent by charging 0.1 percent interest on a part of cash reserves parked at the bank by financial institutions.
The bank also confirmed its overshooting commitment, saying,"It will continue expanding the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI, all items less fresh food) exceeds 2 percent and stays above the target in a stable manner."
"For the time being, while closely monitoring the impact of Covid-19, the bank will support financing, mainly of firms, and maintain stability in financial markets, and will not hesitate to take additional easing measures if necessary; it also expects short- and long-term policy interest rates to remain at their present or lower levels," the bank said, repeating its recent statement.
The two-day policy meeting that ended Friday was the last scheduled one for Governor Haruhiko Kuroda, who has led the bank's 'unprecedented' large-scale monetary easing campaign for nearly 10 years based on the central bank's policy coordination agreement with the government as part of a reflationary Abenomics policy mix of aggressive monetary easing, flexible fiscal spending and growth strategies.
BoJ policymakers were initially successful in boosting zero inflation to end 15 years of deflation but have had a tough time keeping the momentum, first hit by a plunge in crude oil prices from 2014 to 2016 and the lingering drag from the sales tax hike from 5 percent to 8 percent in 2014. They are still in pursuit of stable 2 percent inflation that comes with sustainable wage hikes and economic growth.
Before Kuroda's second five-year term ends on April 8, the two deputy governors -- Masayoshi Amamiya and Masazumi Wakatabe -- will also retire at the end of their five-year terms on March 19.
The government will formally appoint economics professor Kazuo Ueda as BoJ governor, as well as Shinichi Uchida, one of the six BoJ executive directors supporting the governor, and Ryozo Himino, a former Ministry of Finance official, as deputy governors. Their nominations were approved by parliament Friday.
No Immediate Policy Shift Expected Under New Governor
During his Diet confirmation hearings, Ueda told lawmakers that it is"necessary and appropriate" to continue monetary easing under the current economic conditions in order to achieve stable 2 percent inflation and help firms raise wages.
Ueda also said there is no immediate need to review the 10-year-old policy coordination accord with the government. The then prime minister Shinzo Abe, who had led his Liberal Democratic Party back to power with a landslide win in December 2012 lower house elections, demanded that the central bank adopt a clear 2 percent inflation target, instead of trying to achieve a stable 1 percent price increase in the long term.
BoJ Keeps Interest Rate Targets, Asset Purchases
The bank's board unanimously maintained its latest decision made in December to allow the yield on the 10-year Japanese government bonds to rise to 0.5 percent from the previous cap of 0.25 percent amid upward pressures arising from aggressive tightening by other major central banks, hoping to revive some of the paralyzed market functions under its yield curve control regime.
The BoJ board confirmed that the bank will continue offering to buy 10-year Japanese government bonds at a fixed rate of 0.5 percent every business day,"unless it is highly likely that no bids will be submitted." The board decided to introduce this new type of market operation in April 2022.
The bank maintained its projection that the upward pressures on the core CPI (excluding fresh food), led by high costs of importing materials and products, are"expected to decelerate toward the middle of fiscal 2023 (starting in April)," noting that the contribution of such price rises to the CPI is likely to wane and the government is providing subsidies to cap retail gasoline and utility prices.
"Thereafter, the rate of increase is projected to accelerate again moderately on the back of improvement in the output gap and rises in medium- to long-term inflation expectations and in wage growth," the bank said, repeating its outlook provided in January. It also noted that the government program to push down energy prices for consumers will taper off toward the middle of fiscal 2023.
The current spike in consumer inflation to around 4 percent is mostly due to elevated energy and commodities costs aggravated by the relatively weak yen. Service prices have been edging up on a slow pace of wage hikes, up 1.2 percent on year in January, compared to a 7.2 percent surge in goods prices.
BoJ Continues to See Japan Economic Recovery Despite Headwinds
The BoJ maintained its assessment on the current conditions, saying,"Japan's economy, despite being affected by factors such as high commodities prices, has picked up as the resumption of economic activity has progressed while public health has been protected from Covid-19."
"Japan's economy is likely to recover, with the impact of Covid-19 and supply-side constraints waning, although it is expected to be under downward pressure stemming from high commodities prices and slowdowns in overseas economies," the bank said, repeating its view presented in the quarterly Outlook Report issued in January.
Looking ahead, the bank repeated its recent risk assessment that"there remain extremely high uncertainties for Japan's economy" including developments in overseas economic activities and prices, the Ukraine war, commodity prices and the course of the pandemic at home and aboard.
"In this situation, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices," the bank said, repeating its recent mantra.
Easing Policy Stance Unchanged
At its two-day meeting that ended at around 11:30 a.m. JST Friday (0230 GMT Friday/2130 EST Thursday), the BOJ's nine-member board decided in a unanimous vote to maintain its overall monetary easing stance under the yield curve control framework that it adopted in September 2016, vowing to keep zero to negative interest rates"as long as necessary" to achieve its 2 percent inflation target in a stable manner.
Under the current framework, the BOJ is keeping the 10-year government bond yield, the benchmark for long-term borrowing costs, at around zero percent by buying"a necessary amount" of Japanese government bonds"without setting an upper limit," and to keep the overnight interest rate at minus 0.1 percent by charging 0.1 percent interest on a part of cash reserves parked at the bank by financial institutions.
The bank also confirmed its overshooting commitment, saying,"It will continue expanding the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI, all items less fresh food) exceeds 2 percent and stays above the target in a stable manner."
"For the time being, while closely monitoring the impact of Covid-19, the bank will support financing, mainly of firms, and maintain stability in financial markets, and will not hesitate to take additional easing measures if necessary; it also expects short- and long-term policy interest rates to remain at their present or lower levels," the bank said, repeating its recent statement.
Market Consensus Before Announcement
The Bank of Japan's policy board is expected to decide unanimously to maintain its basic monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases, against the backdrop of a possible recession in other major economies and an expected waning in inflation from the current spike boosted by high import costs.
Governor Haruhiko Kuroda, whose second five-year term ends on April 8, has said repeatedly that the bank needs to maintain its accommodative monetary policy stance until inflation reaches stable 2 percent with solid wage growth and a positive output gap.
Economics professor Kazuo Ueda, who has been nominated by the government to succeed Kuroda, told lawmakers at a parliamentary confirmation hearing last month that it is"necessary and appropriate" to continue monetary easing under the current economic conditions in order to achieve stable 2 percent inflation and help firms raise wages.
Ueda also said there is no immediate need to review the current policy coordination agreement struck between the government and the central bank in January 2013. The then prime minister Shinzo Abe, who had led his Liberal Democratic Party back to power with a landslide win in December 2012 lower house elections, demanded that the central bank adopt a clear 2 percent inflation target, instead of trying to achieve a stable 1 percent price increase in the long term.
Ueda's nomination is expected to be approved by parliament this week due to the ruling coalition's majority in both chambers. Ueda served on the bank's nine-member policy board from 1998 until 2005.
Governor Haruhiko Kuroda, whose second five-year term ends on April 8, has said repeatedly that the bank needs to maintain its accommodative monetary policy stance until inflation reaches stable 2 percent with solid wage growth and a positive output gap.
Economics professor Kazuo Ueda, who has been nominated by the government to succeed Kuroda, told lawmakers at a parliamentary confirmation hearing last month that it is"necessary and appropriate" to continue monetary easing under the current economic conditions in order to achieve stable 2 percent inflation and help firms raise wages.
Ueda also said there is no immediate need to review the current policy coordination agreement struck between the government and the central bank in January 2013. The then prime minister Shinzo Abe, who had led his Liberal Democratic Party back to power with a landslide win in December 2012 lower house elections, demanded that the central bank adopt a clear 2 percent inflation target, instead of trying to achieve a stable 1 percent price increase in the long term.
Ueda's nomination is expected to be approved by parliament this week due to the ruling coalition's majority in both chambers. Ueda served on the bank's nine-member policy board from 1998 until 2005.
Definition
The Bank of Japan is the central bank of Japan. The Bank of Japan Act states that the bank's monetary policy should be aimed at"achieving price stability, thereby contributing to the sound development of the national economy." The nine-member policy board reviews economic conditions at home and abroad before making a policy decision. There is no specific time for the announcement. The board holds eight two-day Monetary Policy Meetings a year, in January, March, April, June, July, September, October and December. At each meeting, the board votes on the proposals on the bank’s monetary policy stance and the basic guideline on how to achieve the policy target submitted by the chair of the board, who is the bank governor.
Description
The announcement of the bank’s monetary policy decision after each meeting can cause a market reaction, even when there is no change to the policy stance. Markets tend to look ahead toward a policy shift, pricing in a change to the bank’s targets for overnight and long-term interest rates, the pace of financial asset purchases or the scale of market operations.
Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.
Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.
Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.
Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.
