| 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 continue seeking stable 2 percent inflation and support sustainable wage growth.
At the same time, the board will spend the next 12 to 18 months, conducting a"broad-perspective review" of the costs and benefits of the bank's various monetary easing measures implemented in the past 25 years. Achieving price stability"has been a challenge" since late 1990s when Japan plunged into deflation, it said.
In a subtle tweak, the bank removed its long-held stance from its policy statement while maintaining its pledge that it will not hesitate to take additional easing measures if necessary. Until at the last meeting, in March, the bank concluded that"it also expects short- and long-term policy interest rates to remain at their present or lower levels."
It is a delicate balancing act. The bank's policymakers feel that they must continue easing to achieve 2 percent inflation but they are also aware that they have to gradually prepare for an eventual exit from the current large-scale easing program.
The board projected consumer inflation will ease below its 2 percent target in fiscal 2023 after a temporary spike to 3 percent in fiscal 2022, which was caused by last year's high import and producer costs arising from Russia's invasion of Ukraine and prolonged supply constraints.
The two-day policy meeting that ended Friday was the first one under Governor Kazuo Ueda, who took office on April 9. He has told lawmakers and reporters 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, the first academic to lead the bank, took over from Haruhiko Kuroda, a former top finance ministry policymaker who 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.
Ueda served on the BoJ's nine-member policy board from 1998 until 2005 under the revised Bank of Japan Act that called for more transparency in the decision-making process and independence of political influences. During that period, the bank conducted zero interest policy and its first quantitative easing to guide economy recovery after the Asian financial crisis and the collapse of some domestic lenders and brokers.
The bank's board unanimously maintained its 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, which was designed to meet upward pressures arising from last year's aggressive tightening by other major central banks. The bank also hopes to revive some of the paralyzed market function 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.
In its quarterly Outlook Report, which was issued at the end of the bank's two-day meeting, the BoJ board revised up its forecast for inflation for the current fiscal year ending next March while foreseeing consumer prices will lose some steam and fail to reach the bank's elusive 2 percent target in a sustainable manner.
"With regard to the risk balance, risks to economic activity are skewed to the downside for fiscal 2023 but are generally balanced thereafter," the bank said, basically repeating its analysis provided in January.
"Risks to prices are skewed to the upside for fiscal 2023 but are skewed to the downside for fiscal 2025" it said, pointing to the downside risk that was not present in the January report.
For fiscal 2023 ending in March 2024, the median forecast for the year-on-year increase in the core consumer price index (excluding fresh food) is 1.8 percent, compared to 1.6 percent forecast in January. In fiscal 2022 that ended last month, the core CPI rose 3.0 percent, as projected by the board, after rising 0.1 percent in fiscal 2021 and falling 0.4 percent in fiscal 2020.
The board's inflation projection for fiscal 2024 is 2.0 percent, up from 1.8 percent in January, but its forecast for 2025, the first estimate, is 1.6 percent. This indicates that the banks' battle to reflate the economy will remain prolonged.
The recent spike in consumer inflation to above 4 percent is mostly due to elevated energy and commodities costs aggravated by the relatively weak yen. The core index has eased to a 3.1 percent annual rate in March after rising 3.1 percent in February and surging at a 41-year high of 4.2 percent in January.
The board's median economic growth forecast for fiscal 2023 is 1.4 percent, revised down from 1.7 percent projected three months ago. Its GDP forecast for fiscal 2024 was revised up slightly to 1.2 percent from 1.1 percent. The board expects the economy to grow at a slower pace of 1.0 percent in fiscal 2025 (its first estimate).
At the same time, the board will spend the next 12 to 18 months, conducting a"broad-perspective review" of the costs and benefits of the bank's various monetary easing measures implemented in the past 25 years. Achieving price stability"has been a challenge" since late 1990s when Japan plunged into deflation, it said.
In a subtle tweak, the bank removed its long-held stance from its policy statement while maintaining its pledge that it will not hesitate to take additional easing measures if necessary. Until at the last meeting, in March, the bank concluded that"it also expects short- and long-term policy interest rates to remain at their present or lower levels."
It is a delicate balancing act. The bank's policymakers feel that they must continue easing to achieve 2 percent inflation but they are also aware that they have to gradually prepare for an eventual exit from the current large-scale easing program.
The board projected consumer inflation will ease below its 2 percent target in fiscal 2023 after a temporary spike to 3 percent in fiscal 2022, which was caused by last year's high import and producer costs arising from Russia's invasion of Ukraine and prolonged supply constraints.
The two-day policy meeting that ended Friday was the first one under Governor Kazuo Ueda, who took office on April 9. He has told lawmakers and reporters 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, the first academic to lead the bank, took over from Haruhiko Kuroda, a former top finance ministry policymaker who 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.
Ueda served on the BoJ's nine-member policy board from 1998 until 2005 under the revised Bank of Japan Act that called for more transparency in the decision-making process and independence of political influences. During that period, the bank conducted zero interest policy and its first quantitative easing to guide economy recovery after the Asian financial crisis and the collapse of some domestic lenders and brokers.
The bank's board unanimously maintained its 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, which was designed to meet upward pressures arising from last year's aggressive tightening by other major central banks. The bank also hopes to revive some of the paralyzed market function 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.
In its quarterly Outlook Report, which was issued at the end of the bank's two-day meeting, the BoJ board revised up its forecast for inflation for the current fiscal year ending next March while foreseeing consumer prices will lose some steam and fail to reach the bank's elusive 2 percent target in a sustainable manner.
"With regard to the risk balance, risks to economic activity are skewed to the downside for fiscal 2023 but are generally balanced thereafter," the bank said, basically repeating its analysis provided in January.
"Risks to prices are skewed to the upside for fiscal 2023 but are skewed to the downside for fiscal 2025" it said, pointing to the downside risk that was not present in the January report.
For fiscal 2023 ending in March 2024, the median forecast for the year-on-year increase in the core consumer price index (excluding fresh food) is 1.8 percent, compared to 1.6 percent forecast in January. In fiscal 2022 that ended last month, the core CPI rose 3.0 percent, as projected by the board, after rising 0.1 percent in fiscal 2021 and falling 0.4 percent in fiscal 2020.
The board's inflation projection for fiscal 2024 is 2.0 percent, up from 1.8 percent in January, but its forecast for 2025, the first estimate, is 1.6 percent. This indicates that the banks' battle to reflate the economy will remain prolonged.
The recent spike in consumer inflation to above 4 percent is mostly due to elevated energy and commodities costs aggravated by the relatively weak yen. The core index has eased to a 3.1 percent annual rate in March after rising 3.1 percent in February and surging at a 41-year high of 4.2 percent in January.
The board's median economic growth forecast for fiscal 2023 is 1.4 percent, revised down from 1.7 percent projected three months ago. Its GDP forecast for fiscal 2024 was revised up slightly to 1.2 percent from 1.1 percent. The board expects the economy to grow at a slower pace of 1.0 percent in fiscal 2025 (its first estimate).
Market Consensus Before Announcement
At its April 27-28 meeting, the Bank of Japan's nine-member policy board is widely expected to vote 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 economic recovery from the pandemic-caused slump and guide inflation toward its 2 percent target with sustainable wage hikes.
The focus is on the board's latest medium-term CPI and GDP forecasts in the quarterly Outlook Report to be issued after the meeting, including their first estimates for fiscal 2025 ending March 2026. In the January report, the board projected that the increase in the core CPI (excluding fresh food) would slow to 1.6 percent in fiscal 2023 from an estimated 3.0 percent for fiscal 2022 as the base effects of last year's spike in energy and commodities prices fade. For fiscal 2024, the board forecast the core reading would rise 1.8 percent, noting the impact of government subsidies to cap retail gasoline and utility prices will wane.
The BoJ's new governor, Kazuo Ueda, told reporters at an inaugural news conference on April 10 that it is"appropriate" to continue seeking stable and sustainable 2 percent inflation under the bank's yield curve control policy framework that was adopted in September 2016. Ueda, the first academic to lead the BoJ in its modern history, began his five-year term on April 9.
He also said"there is no immediate need to review" the policy accord signed between the government and the BoJ in January 2013, three months before his predecessor Haruhiko Kuroda launched an"unprecedented" large-scale monetary easing program.
Ueda acknowledged that the negative interest rate policy, which was in introduced in January 2016, has been squeezing lenders' profit margins, although pointing to measures that are designed to minimize its side effects."Under the assessment that the underlying inflation rate has not reached 2 percent, I think it is appropriate to continue (the negative rate policy)," he said.
Asked about an eventual exit from easing, the new governor said the bank"will have to normalize its policy at an appropriate timing if it is judged that 2 percent inflation is being achieved in a truly stable and sustainable manner."
"On the other hand, if it proves to be difficult (to achieve 2 percent target), we will make a proper judgement on exploring for a more sustainable monetary policy framework while paying attention to side effects," he added.
The focus is on the board's latest medium-term CPI and GDP forecasts in the quarterly Outlook Report to be issued after the meeting, including their first estimates for fiscal 2025 ending March 2026. In the January report, the board projected that the increase in the core CPI (excluding fresh food) would slow to 1.6 percent in fiscal 2023 from an estimated 3.0 percent for fiscal 2022 as the base effects of last year's spike in energy and commodities prices fade. For fiscal 2024, the board forecast the core reading would rise 1.8 percent, noting the impact of government subsidies to cap retail gasoline and utility prices will wane.
The BoJ's new governor, Kazuo Ueda, told reporters at an inaugural news conference on April 10 that it is"appropriate" to continue seeking stable and sustainable 2 percent inflation under the bank's yield curve control policy framework that was adopted in September 2016. Ueda, the first academic to lead the BoJ in its modern history, began his five-year term on April 9.
He also said"there is no immediate need to review" the policy accord signed between the government and the BoJ in January 2013, three months before his predecessor Haruhiko Kuroda launched an"unprecedented" large-scale monetary easing program.
Ueda acknowledged that the negative interest rate policy, which was in introduced in January 2016, has been squeezing lenders' profit margins, although pointing to measures that are designed to minimize its side effects."Under the assessment that the underlying inflation rate has not reached 2 percent, I think it is appropriate to continue (the negative rate policy)," he said.
Asked about an eventual exit from easing, the new governor said the bank"will have to normalize its policy at an appropriate timing if it is judged that 2 percent inflation is being achieved in a truly stable and sustainable manner."
"On the other hand, if it proves to be difficult (to achieve 2 percent target), we will make a proper judgement on exploring for a more sustainable monetary policy framework while paying attention to side effects," he added.
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.
