| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Change | 0.1bp | 0bp to 0.2bp | 0.1 to 0.2bp | 0bp |
| Level | 0 to 0.1% | -0.1% to 0 to 0.1% | 0 to 0.1% | -0.1% |
Highlights
The Bank of Japan's nine-member board decided in a majority vote to end its seven-year-old yield curve control framework and lift the minus 0.1 percent overnight interest rate target to a range of zero to 0.1 percent from minus 0.1 percent, its first rate hike since February 2007. The new guideline for market operations will take effect on March 21.
Unlike other central banks, the BoJ is not raising rates to cool off an overheating economy or elevated consumer inflation. It is taking the first step toward unwinding massive cash injections into the financial system after nearly 11 years of trying to reflate the economy and turn around the deflationary mindset among households and businesses. Both Governor Kazuo Ueda and Deputy Governor Shinichi Uchida have said financial conditions will remain accommodative even after negative short-term interest rates are lifted.
Many board members believe that the risk of Japan's economy slipping back into deflation has been reduced and inflation is likely to be led by sustained wage hikes, instead of spikes in import costs. The move follows news on Friday that wage hikes for fiscal 2024 that begins next month are set to well surpass the pace of increase seen in the previous year.
But the vote on the short-term rate target was 7 to 2. Board member Toyoaki Nakamura voted against the rate hike, urging members to wait until the bank can confirm that smaller firms also have the ability to raise wages. Asahi Noguchi dissented, arguing that ending the negative rate and yield curve control at the same time could disrupt financial conditions.
The board decided to no longer target the yield on 10-year Japanese government bonds (JGBs), which had been capped at around 0.1 percent under the bank's official target of"around zero" under the yield curve control framework adopted in September 2016. It is now allowing a natural uptick in long-term interest rates that reflects economic recovery and substantial wage hikes.
The board voted 8 to 1 to continue its purchases of JGBs"with broadly the same amount as before," which is currently about ¥6 trillion per month. In case of a rapid rise in long-term rates, the bank will"make nimble responses by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchases of JGBs." Board member Nakamura voted against the change in the way the bank targets long-term rates.
On the bank's large-scale asset purchases that it has been using to support market and economic sentiment, the board decided unanimously to stop new purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITS), and discontinue the purchases of commercial paper and corporate bonds in about a year by reducing them gradually.
The BoJ board also decided to drop its"inflation-overshooting commitment" under which it expanded the monetary base until the year-on-year rate of increase in the core CPI (excluding fresh food) would exceed 2 percent and stay above the target in a stable manner.
Unlike other central banks, the BoJ is not raising rates to cool off an overheating economy or elevated consumer inflation. It is taking the first step toward unwinding massive cash injections into the financial system after nearly 11 years of trying to reflate the economy and turn around the deflationary mindset among households and businesses. Both Governor Kazuo Ueda and Deputy Governor Shinichi Uchida have said financial conditions will remain accommodative even after negative short-term interest rates are lifted.
Many board members believe that the risk of Japan's economy slipping back into deflation has been reduced and inflation is likely to be led by sustained wage hikes, instead of spikes in import costs. The move follows news on Friday that wage hikes for fiscal 2024 that begins next month are set to well surpass the pace of increase seen in the previous year.
But the vote on the short-term rate target was 7 to 2. Board member Toyoaki Nakamura voted against the rate hike, urging members to wait until the bank can confirm that smaller firms also have the ability to raise wages. Asahi Noguchi dissented, arguing that ending the negative rate and yield curve control at the same time could disrupt financial conditions.
The board decided to no longer target the yield on 10-year Japanese government bonds (JGBs), which had been capped at around 0.1 percent under the bank's official target of"around zero" under the yield curve control framework adopted in September 2016. It is now allowing a natural uptick in long-term interest rates that reflects economic recovery and substantial wage hikes.
The board voted 8 to 1 to continue its purchases of JGBs"with broadly the same amount as before," which is currently about ¥6 trillion per month. In case of a rapid rise in long-term rates, the bank will"make nimble responses by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchases of JGBs." Board member Nakamura voted against the change in the way the bank targets long-term rates.
On the bank's large-scale asset purchases that it has been using to support market and economic sentiment, the board decided unanimously to stop new purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITS), and discontinue the purchases of commercial paper and corporate bonds in about a year by reducing them gradually.
The BoJ board also decided to drop its"inflation-overshooting commitment" under which it expanded the monetary base until the year-on-year rate of increase in the core CPI (excluding fresh food) would exceed 2 percent and stay above the target in a stable manner.
Market Consensus Before Announcement
The Bank of Japan's nine-member board is expected to decide in a majority vote to end its seven-year-old yield curve control framework and lift the minus 0.1 percent short-term rate target to a range of zero to 0.1 percent, which would be the bank's first rate increase since 2007. The latest outlook is based on news that wage hikes for fiscal 2024 that begins next month are set to well surpass the pace of increase seen in the previous year.
The BoJ is expected to end targeting the 10-year bond yield at a certain level, currently"around zero" with a flexible upper limit of 0.1 percent, as the yield curve control framework has fulfilled its role of suppressing borrowing costs and turning around the stubborn deflationary mindset. The bank is also expected to revive the uncollateralized overnight interest rate"in a range of zero to 0.1 percent" as the main policy tool and apply a positive 0.1 percent interest on excess reserves parked at the bank by financial institutions, which had been in place before it was replaced in April 2013 by quantitative and qualitative monetary easing that initially targeted the sum of cash available for economic activity.
The board is also expected to discuss how the bank should reduce its purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs), which it buys"as necessary" with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding.
The BoJ is expected to end targeting the 10-year bond yield at a certain level, currently"around zero" with a flexible upper limit of 0.1 percent, as the yield curve control framework has fulfilled its role of suppressing borrowing costs and turning around the stubborn deflationary mindset. The bank is also expected to revive the uncollateralized overnight interest rate"in a range of zero to 0.1 percent" as the main policy tool and apply a positive 0.1 percent interest on excess reserves parked at the bank by financial institutions, which had been in place before it was replaced in April 2013 by quantitative and qualitative monetary easing that initially targeted the sum of cash available for economic activity.
The board is also expected to discuss how the bank should reduce its purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs), which it buys"as necessary" with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding.
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.
