Bank of Japan Governor Kazuo Ueda arrives to conduct an interview with a small group of journalists in Tokyo on May 25, 2023.
Richard A. Brooks | AFP | Getty Images
Japan’s central bank maintained its ultra loose monetary policy on Friday, electing to support fragile economic growth at a time of swirling global uncertainty.
The Bank of Japan held its short-term interest rate target at -0.1%, in line with economists’ expectations, and made no changes to its yield curve control policy after a two-day meeting.
The Japanese yen declined after the decision, falling by as much as 0.3% to around 140.70 per U.S. dollar before paring losses. The Nikkei 225 similarly reversed earlier losses to creep higher.
“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 of Japan said in its policy statement.
Outlook for growth and inflation
The Bank of Japan expects the world’s third-largest economy to “recover moderately around the middle of fiscal 2023” due to pent-up demand. It cautioned, however, commodity prices and a growth slowdown overseas will likely limit growth.
“The pace of growth is highly likely to decelerate gradually,” the Bank of Japan said. “The year-on-year rate of increase in the CPI (all items less fresh food) is likely to decelerate toward the middle of fiscal 2023, with a waning of the effects of the pass-through to consumer prices of cost increases led by the rise in import prices.”
Governor Kazuo Ueda is under pressure with inflation well above the BOJ’s 2% target. Wage inflation is also expected to increase after workers received the biggest pay raise in 25 years following March negotiations with top Japanese companies.
The Bank of Japan’s short-term interest rate target has been held at -0.1% since it first adopted negative rates in 2016 to fight deflation and jumpstart economic growth. It is keeping current policy to cope with growth it still sees as fragile.
In contrast, the U.S. Federal Reserve left rates unchanged Wednesday after 10 straight hikes, while the European Central Bank on Thursday raised its main rates to the highest levels in 22 years. The divergence points to the challenges in the global economy.
Friday’s decision shifts focus to the central bank’s next meeting, scheduled for July.
Economists have been watching for changes to the BOJ’s yield curve control policy, which aims to keep 10-year Japanese government bond yields around 0%. In December, the central bank unexpectedly widened the range for the 10-year yield target to 50 basis points above and below 0%.
