Japan’s new central bank governor has stuck with negative rates and announced a policy review

  • The Bank of Japan held its two-day monetary policy meeting from April 27 to 28.
  • Economists polled by Reuters widely expected the central bank to maintain its negative interest rates at -0.1% and make no changes to its yield curve control program.

The Bank of Japan (BOJ) headquarters is seen beyond the cherry blossoms on March 20, 2023 in Tokyo.

Kazuhiro nogi | Afp | Getty Images

Bank of Japan It did not change its interest rates In the first policy meeting of newly appointed Governor Kazuo Ude.

The decision was in line with economists’ expectations that the benchmark interest rate would remain unchanged at -0.1% since the central bank took rates below zero in 2016.

The central bank kept the tolerance range for 10-year Japanese government bonds unchanged at 50 basis points above and below its target of 0%.

In December, the central bank shocked global bond markets by widening the tolerance limit on 10-year Japanese government bonds from 25 basis points to 50 basis points above and below 0%.

The Japanese yen fell 0.8% to 134.75 against the US dollar after the announcement.

While maintaining current policies, the Bank of Japan said it had “decided to conduct a broad-based review” of its easing measures.

The central bank said the planned time frame for the review would be one to one-and-a-half years.

“Achieving price stability has been a challenge for 25 years,” the central bank said, adding that its monetary policy “has interacted with and influenced broad areas of Japan’s economic activity, prices and the financial sector.”

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From a separate perspectiveThe central bank forecasts inflation for all items except fresh food and energy to be 2.5% in fiscal 2023 and 1.5% to 2% in 2024 and 2025.

Ueda has previously stressed that inflation must be “very strong and close to 2%” – the central bank’s target – before making any changes to yield curve control policy.

Inflation in Japan’s capital edged higher in April, according to government data released Friday ahead of the BOJ decision.

The consumer price index in Japan’s capital rose 3.5% in April, beating forecasts for a 3.2% increase in a Reuters poll. That figure was slightly higher than the 3.2% reading in March.

Excluding fresh food and energy, Tokyo’s consumer price index rose 2.3% in April – slightly above the central bank’s inflation target of 2%.

Inflation in Tokyo is a leading indicator of the nationwide trend. Japan’s national core CPI was 3.1% in March.

Local newspaper Sange said Earlier this week, the Bank of Japan is expected to review policies under Ueda to “understand the reasons behind Japan’s sluggish economy and design more effective measures.”

Meanwhile, Japan’s unemployment rate rose to 2.8% in March from 2.6% in February, government data showed.

That was 2.5% higher than Reuters’ forecast and marked the highest reading since January 2022.

The country’s jobs-to-applicants ratio was 1.32, below Reuters’ estimate of 1.34.

“It’s a difficult situation, but the BOJ should focus on price stability as the central bank’s primary objective,” Yamaoka said, adding that the central bank should focus more on inflationary pressures than the real economy.

“They cannot continue with the current extraordinary intervention in the JGB market” to defraud both, Yamaoka said.

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