Bank of Japan maintains easy policy, Kuroda avoids short-term rate hike opportunities

Tokyo — The Bank of Japan predicted that it would exceed this year’s inflation expectations in a new forecast released Thursday, but maintained ultra-low interest rates and outliers in the wave of global central bank policy tightening. Showed determination to do.

Haruhiko Kuroda, the governor of the Bank of Japan, said he had “no plans” to raise interest rates or raise the implicit 0.25% cap set on banks’ 10-year bond yield targets, ignoring the possibility of short-term policy tightening. did.

“The economy is in the midst of a pandemic recovery. Deterioration of the terms of trade in Japan has also led to an outflow of income,” Kuroda said at a press conference.

“Therefore, we must continue with simple policies to ensure that rising corporate profits lead to modest wage and price increases,” he said.

As widely expected, the Bank of Japan maintained its short-term interest rate target at -0.1% and its 10-year bond yield target at around 0%.

The BOJ’s dovish language stands out in the recent surge in central bank rate hikes to counter rising inflation.

Japan’s inflation rate has exceeded the BOJ’s target of 2% due to rising fuel costs and commodity prices, but withdrawing stimulus measures as the slowdown in global growth still obscures the weak economic outlook. He reiterated that he was not in a hurry.

“The uncertainty surrounding the Japanese economy is very high. In a quarterly report issued after the decision, the Bank of Japan needs to pay attention to the movements of financial and currency markets and their impact on the economy and prices. There is. “

The Bank of Japan emphasized caution against the recent sharp depreciation of the yen and included a rare warning in its report that “rapid volatility” in the currency market is one of the risks to the Japanese economy.

Haruhiko Kuroda, Governor of the Bank of Japan
Haruhiko Kuroda, Governor of the Bank of Japan, will give a lecture at a press conference held in Tokyo on December 19, 2019. (Kim Jeong Hoon / Reuters)

Swim against the tide

In the new quarterly forecast, the Board has raised its key consumer inflation forecast for the current fiscal year, which ends in March 2023, from 1.9% to 2.3%. It also raised inflation expectations for the following year from 1.1% to 1.4%.

However, the Bank of Japan has lowered its growth forecast for the year from 2.9% to 2.4%, warning of prolonged supply constraints, rising commodity prices and the potential impact of the COVID-19 pandemic.

However, the Bank of Japan said that inflation expectations are rising, nodding to the wave of rising prices, and that it may rise further through wage increases and other factors.

In a statement released after the decision, the Bank of Japan did not change its pledge to keep interest rates at “current or lower” levels to support growth by strengthening stimulus measures as needed.

But swimming against the global trend of monetary tightening is not without its costs. Due to policy differences, the Japanese yen has been pushed to its lowest level in 24 years, pushing up import costs, which have already soared, and damaging households and retailers.

Kuroda warned that the recent sharp depreciation of the yen was “undesirable,” but denied the possibility of using rate hikes to delay the depreciation of the currency.

“I don’t think the yen will stop depreciating with a small rate hike,” Kuroda said. “If we were to stop the depreciation of the yen by raising interest rates, we would have to raise the price significantly, which would cause enormous damage to the economy,” he added.

Kuroda also said the BOJ’s huge bond purchases in June were a temporary but necessary step to keep yield caps from speculative transactions.

According to recent BOJ data, central banks have been forced to prey on Japanese government bonds (JGB) worth 16 trillion yen ($ 116 billion) in June in order to keep the 0.25% yield cap. ..

Aggressive buying has backed up past efforts to push the BOJ’s bond market ownership by more than 50% and gradually shrink its huge balance sheet, creating tensions in the futures market.

“Allowing interest rates to rise above target just to protect market function would be against our goal of keeping monetary policy loose,” Kuroda said.

($ 1 = 138.0000 yen)

Kihara Reika