The Japanese central bank violated the mainstream approach, at a time when global central banks are raising interest rates to counter inflation, which has led to the depreciation of the yen against the dollar.
Bank officials were expected to keep monetary policy unchanged after the second two-day meeting chaired by the bank’s new governor, Kazuo Ueda, who took office in April.
The authorities left the bank’s negative interest rate unchanged and did not adjust the range of government bond price volatility for 10 years.
This announcement caused the Japanese currency to fall to around 141.39 yen per dollar in the afternoon, from around 140.20 yen in the morning.
Elsewhere, the European Central Bank on Thursday raised interest rates to their highest level in 22 years, which boosted the euro, and at the same time warned against further inflation. and slowing growth.
The U.S. Federal Reserve also decided on Wednesday not to raise interest rates, as expected, but indicated plans for a further hike as it considered the impact of 10 consecutive hikes since the start of last year. .
Oxford Economics’ Shigeto Nagai said the BoJ seemed in no rush to change its ways “despite the recent uptick on the growth and inflation fronts.”
“We believe the BoJ will maintain the status quo for about a year to assess whether the economy is on track to achieve 2% inflation over Ueda’s five-year term,” he added.
decision-making stage
A rebound in tourism and household spending helped the world’s third-largest economy grow 0.7% better than expected in the January-March quarter.
The inflation rate was 3.4% in April, down from a peak in January when consumer prices rose 4.20% year-on-year, the highest rate since 1981.
While inflation in Japan remains below very high rates in the United States and elsewhere, it is above the central bank’s 2% target, which has been exceeded every month since April last year. .
The Bank of Japan says the rise in prices is fueled by temporary factors, such as the war in Ukraine, and has therefore maintained its accommodative policies in an effort to encourage sustainable growth.
In April, the bank announced a broad review of its “unconventional” attempts to avoid the deflation Japan has experienced since the 1990s in the wake of the economic bubble.
But walking away from monetary easing will be a difficult balancing act for Ueda, which faces pressure to readjust its policies while limiting any shocks to the economy.
On Friday, he said the bank would maintain its policies.
Ueda told reporters that the Bank of Japan “will resolutely pursue monetary easing, so that the 2% inflation target is maintained continuously and sustainably, accompanied by wage increases.”
There was speculation of a change in approach late last year when the bank widened the range in which it allows 10-year notes to fluctuate, but that ended there.
Ueda “will likely set a deadline to decide whether the economy is on the right track during his tenure so that he can take the necessary steps,” Nagai said, adding that this decision-making phase could take place in mid- 2024.
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