As anticipated, the Bank of Japan maintained an ultra-loose monetary policy on Tuesday, emphasizing policymakers’ inclination to await additional information regarding how much wages will increase sufficiently to sustain inflation within its target range of 2 percent.
The Bank of Japan maintains its highly low interest rates. Additionally, the central bank maintained its dovish policy guidance, which states that it will implement further monetary easing measures “without hesitation” should the need arise.
As of his post-meeting briefing, Governor Kazuo Ueda may provide clues that influence the markets regarding the timing of the central bank’s potential exit from its hostile interest rate policy. During the BOJ’s two-day meeting that concluded on Tuesday, it maintained its short-term rate objective at -0.1 percent and the yield on 10-year government bonds at approximately zero percent. An additional lax upper band of 1.0 percentage points was maintained for the 10-year yield.
“Extraordinarily high levels of uncertainty surround Japan’s economy and prices,” the BOJ said.
Governor Ueda is anticipated to clarify the policy decision at a news conference at 3:30 pm (0630GMT).
Inflation in Japan has remained above 2% for more than a year, and some companies have indicated they are willing to continue wage hikes, which increases the likelihood of a policy shift shortly.
The BOJ loosened its grip on long-term borrowing costs in July by increasing the yield limit on 10-year bonds. The limit was reduced to a mere allusion in October, an indication that Ueda was progressively dismantling the radical stimulus of his predecessor.
In November, a Reuters survey of economists revealed that over 80% anticipated the BOJ to discontinue its hostile interest rate policy the following year, with half of them pessimistic that it would occur in April. A policy transition is possible in January.
According to analysts, the BOJ may find it simpler to make decisions during the months of January and April, when it publishes a quarterly outlook report that includes updated price and growth projections.
However, the BOJ’s decision could be complicated by the rapid evolution of global monetary policy, as European and American central banks have signaled that they have completed raising interest rates.
Analysts predict that increasing interest rates when other central banks are reducing them could spark a yen surge that would harm the profits of major manufacturers and deter them from increasing wages.
Political factors further confound the policy trajectory of the BOJ, as Prime Minister Fumio Kishida’s approval ratings have fallen to all-time lows due to persistent inflation.