| 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.
The bank repeated its April Outlook that the domestic economy should recover modestly and inflation is expected to ease in fiscal 2023 ending next March after a spike in global energy and commodity markets led to a surge in consumer prices in fiscal 2022.
"With extremely high uncertainties surrounding economies and financial markets at home and abroad, the bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions," the bank said, repeating its last statement issued in April.
"By doing so, it will aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases."
The statement indicates that the bank could adjust its yield curve control framework to allow slightly higher interest rates in a gradual shift toward an eventual exit from a decade of large-scale monetary easing.
In April, the bank said the board would 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 April.
Need to Watch If Wage Hikes Will Spread to Smaller Firms
The two-day policy meeting that ended Friday was the second one under Governor Kazuo Ueda, who took office on April 9.
In a speech on May 19, Ueda said the focus is on whether wage hikes by large firms will be sustained and spread to small businesses."Moreover, although the underlying rate of inflation is expected to gradually increase toward the price stability target, it is likely to take some more time," he said.
"While there is an opposite risk that inflation will remain above 2 percent if a change in policy falls behind the curve, the cost of waiting for underlying inflation to rise until it can be judged that 2 percent inflation has fully taken hold is not as large as the cost of making hasty policy changes," Ueda said.
"In this sense, it is appropriate to take time to decide on adjustments to monetary easing toward a future exit," he concluded.
In its quarterly Outlook Report released in April, the BoJ board revised up its forecast for consumer inflation for fiscal 2023 ending next March to 1.8 percent from 1.6 percent projected in January. It also predicted that inflation will lose some steam from 3.0 percent in fiscal 2022 and fail to be anchored around the bank's 2 percent target in a sustainable manner, averaging 2.0 percent in fiscal 2024 and 1.6 percent in fiscal 2025.
The bank will update its medium-term growth and inflation projections in the next report due on July 28.
BoJ Keeps Interest Rate Targets, Asset Purchases
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 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.
BoJ Keeps April Outlook for Modest Economic Recovery, Easing Inflation
"Japan's economy is likely to recover moderately toward around the middle of fiscal 2023, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from past high commodity prices and a slowdown in the pace of recovery in overseas economies," the bank said, repeating its assessment presented in April.
"Thereafter, as a virtuous cycle from income to spending gradually intensifies, Japan's economy is projected to continue growing at a pace above its potential growth rate," which is estimated to be zero to 0.5 percent. rate."That said, the pace of growth is highly likely to decelerate gradually toward the end of the projection period (from fiscal 2023 until fiscal 2025)."
The BoJ also maintained its inflation outlook that the year-on-year rate of increase in the core consumer price index (excluding fresh food) is likely to decelerate toward the middle of fiscal 2023, with a waning of the effects of a pass-through to consumer prices of cost increases led by a rise in import prices.
"Thereafter, the rate of increase is projected to accelerate again moderately, albeit with fluctuations, as the output gap improves and as medium- to long-term inflation expectations and wage growth rise, accompanied by changes in factors such as firms' price- and wage-setting behavior," the bank, repeating the April report.
BOJ Still Sees 'Extremely High Uncertainties'
Looking ahead, the bank repeated its recent risk assessment that"there are extremely high uncertainties for Japan's economy" including developments in overseas economic activities and prices, the Ukraine war, commodity prices. In April it stopped mentioning the drag from the pandemic as new Covid cases had been largely contained.
"Under these circumstances, 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 BoJ said.
Easing Policy Stance in Place
At its two-day meeting that ended before 1200 JST Friday (0300 GMT Friday/2300 EDT 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."
"The bank will continue to maintain stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary," it concluded.
The bank repeated its April Outlook that the domestic economy should recover modestly and inflation is expected to ease in fiscal 2023 ending next March after a spike in global energy and commodity markets led to a surge in consumer prices in fiscal 2022.
"With extremely high uncertainties surrounding economies and financial markets at home and abroad, the bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions," the bank said, repeating its last statement issued in April.
"By doing so, it will aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases."
The statement indicates that the bank could adjust its yield curve control framework to allow slightly higher interest rates in a gradual shift toward an eventual exit from a decade of large-scale monetary easing.
In April, the bank said the board would 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 April.
Need to Watch If Wage Hikes Will Spread to Smaller Firms
The two-day policy meeting that ended Friday was the second one under Governor Kazuo Ueda, who took office on April 9.
In a speech on May 19, Ueda said the focus is on whether wage hikes by large firms will be sustained and spread to small businesses."Moreover, although the underlying rate of inflation is expected to gradually increase toward the price stability target, it is likely to take some more time," he said.
"While there is an opposite risk that inflation will remain above 2 percent if a change in policy falls behind the curve, the cost of waiting for underlying inflation to rise until it can be judged that 2 percent inflation has fully taken hold is not as large as the cost of making hasty policy changes," Ueda said.
"In this sense, it is appropriate to take time to decide on adjustments to monetary easing toward a future exit," he concluded.
In its quarterly Outlook Report released in April, the BoJ board revised up its forecast for consumer inflation for fiscal 2023 ending next March to 1.8 percent from 1.6 percent projected in January. It also predicted that inflation will lose some steam from 3.0 percent in fiscal 2022 and fail to be anchored around the bank's 2 percent target in a sustainable manner, averaging 2.0 percent in fiscal 2024 and 1.6 percent in fiscal 2025.
The bank will update its medium-term growth and inflation projections in the next report due on July 28.
BoJ Keeps Interest Rate Targets, Asset Purchases
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 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.
BoJ Keeps April Outlook for Modest Economic Recovery, Easing Inflation
"Japan's economy is likely to recover moderately toward around the middle of fiscal 2023, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from past high commodity prices and a slowdown in the pace of recovery in overseas economies," the bank said, repeating its assessment presented in April.
"Thereafter, as a virtuous cycle from income to spending gradually intensifies, Japan's economy is projected to continue growing at a pace above its potential growth rate," which is estimated to be zero to 0.5 percent. rate."That said, the pace of growth is highly likely to decelerate gradually toward the end of the projection period (from fiscal 2023 until fiscal 2025)."
The BoJ also maintained its inflation outlook that the year-on-year rate of increase in the core consumer price index (excluding fresh food) is likely to decelerate toward the middle of fiscal 2023, with a waning of the effects of a pass-through to consumer prices of cost increases led by a rise in import prices.
"Thereafter, the rate of increase is projected to accelerate again moderately, albeit with fluctuations, as the output gap improves and as medium- to long-term inflation expectations and wage growth rise, accompanied by changes in factors such as firms' price- and wage-setting behavior," the bank, repeating the April report.
BOJ Still Sees 'Extremely High Uncertainties'
Looking ahead, the bank repeated its recent risk assessment that"there are extremely high uncertainties for Japan's economy" including developments in overseas economic activities and prices, the Ukraine war, commodity prices. In April it stopped mentioning the drag from the pandemic as new Covid cases had been largely contained.
"Under these circumstances, 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 BoJ said.
Easing Policy Stance in Place
At its two-day meeting that ended before 1200 JST Friday (0300 GMT Friday/2300 EDT 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."
"The bank will continue to maintain stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary," it concluded.
Market Consensus Before Announcement
The Bank of Japan's policy board is expected to vote unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and relatively large asset purchases to continue seeking stable 2 percent inflation and support sustainable wage growth.
The board said in its April meeting statement that it will patiently continue with monetary easing"while nimbly responding to developments in economic activity and prices as well as financial conditions," indicating that it could adjust its yield curve control framework to allow slightly higher interest rates.
In a speech on May 19, Governor Kazuo Ueda said the focus is on whether wage hikes by large firms will be sustained and spread to small businesses."Moreover, although the underlying rate of inflation is expected to gradually increase toward the price stability target, it is likely to take some more time," he said.
"While there is an opposite risk that inflation will remain above 2% if a change in policy falls behind the curve, the cost of waiting for underlying inflation to rise until it can be judged that 2% inflation has fully taken hold is not as large as the cost of making hasty policy changes," Ueda said."In this sense, it is appropriate to take time to decide on adjustments to monetary easing toward a future exit."
The board said in its April meeting statement that it will patiently continue with monetary easing"while nimbly responding to developments in economic activity and prices as well as financial conditions," indicating that it could adjust its yield curve control framework to allow slightly higher interest rates.
In a speech on May 19, Governor Kazuo Ueda said the focus is on whether wage hikes by large firms will be sustained and spread to small businesses."Moreover, although the underlying rate of inflation is expected to gradually increase toward the price stability target, it is likely to take some more time," he said.
"While there is an opposite risk that inflation will remain above 2% if a change in policy falls behind the curve, the cost of waiting for underlying inflation to rise until it can be judged that 2% inflation has fully taken hold is not as large as the cost of making hasty policy changes," Ueda said."In this sense, it is appropriate to take time to decide on adjustments to monetary easing toward a future exit."
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.
