Japan’s central bank stays pat on ultralow interest rates policy

The Bank of Japan (BOJ) has decided to maintain its ultralow interest rates at the conclusion of its two-day policy-setting meeting, the first held under new governor Kazuo Ueda.

The central bank staying pat on its monetary policy was widely anticipated by domestic and overseas economists and market players.

In line with Ueda’s overall dovish outlook and remarks of late, the BOJ chief told parliament this week that judging from the state of the economy and prices, it is appropriate to continue the easing policy with targets for short- and long-term interest rates.

“Japan’s economy has picked up, despite being affected by factors such as past high commodity prices,” the BOJ said in an outlook report. The economy will likely recover moderately, the report also said.

At the conclusion of the central bank’s two-day meeting, Japan’s central bank opted to set short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bond yields to around zero percent, under its yield curve control program.

The BOJ also said it will maintain the program “as long as it is necessary to attain the 2-percent inflation target accompanied by wage increases,” in a slight revision to its policy guidance.

Previously, the bank had used the expression that it forecasts short- and long-term rates to remain at “current or lower levels.”

The Bank of Japan’s long-held target of achieving a 2-percent inflation rate in a stable manner, continues to be elusive, however, as soaring inflation is pushing prices up, while a weak yen is hyper-inflating the export-led economy’s costs for resource-scarce Japan’s imports.

To this end, core consumer prices in fiscal 2025 are now forecast to rise 1.6 percent from a year earlier, official figures showed, with the bank still believing inflationary pressure to be transitory.

The BOJ has also raised its inflation outlooks for the current and next fiscal years, with the core consumer price index, excluding volatile fresh food items, expected to jump to 1.8 percent in fiscal 2023.

This compares the central bank’s previous forecast of the core consumer price increasing 1.6 percent in fiscal 2023.

The bank also expects the core consumer price index to increase 2.0 percent, up from its provisional estimate of a 1.6 percent rise in fiscal 2024.

At the end of the two-day policy meeting, the BOJ said it will conduct a review of its monetary policy framework over the past decades from a “broad perspective.” It will spend the next year or so on completing the assessment, it said. ■

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