The Bank of Japan maintained its monetary policy in its first decision under new governor Kazuo Ueda – Copyright JIJI PRESS/AFP STR
The Bank of Japan announced a review of its longstanding monetary easing measures on Friday, but said it would maintain them for the time being in the first policy decision under new governor Kazuo Ueda.
“The bank has decided to conduct a broad-perspective review of monetary policy, with a planned time frame of around one to one and a half years,” the bank said in a statement following a two-day meeting.
In the immediate term, the institution left its negative interest rate in place and did not adjust the band in which rates for 10-year government bonds fluctuate.
Analysts had predicted no big changes from former economics professor Ueda, who took over earlier this month from Haruhiko Kuroda — the architect of the central bank’s signature ultra-loose strategy, which has been in place for the past decade.
But the review announcement comes as analysts say the stimulus measures that were supposed to deliver a vital boost to the Japanese economy are looking increasingly unsustainable.
The yen’s value has weakened against the dollar as the central bank bucks the global trend of aggressive rate hikes to battle soaring inflation.
Still, at a press conference earlier this month, Ueda called the BoJ’s current stance “appropriate”, signalling there would be no surprises in Friday’s decision.
He has also warned of the risk of sudden moves given global economic uncertainty and fears for the banking sector after the shock failure of three mid-sized US lenders.
– Inflation forecast –
The central bank on Friday hiked its inflation forecasts for the current and next financial years, now predicting 1.8 percent in 2023-24, and two percent in 2024-25.
Data showed last week that Japan’s consumer prices, excluding volatile fresh food prices, rose 3.1 percent year on year in March as inflation slowed from four-decade highs.
That figure is above the BoJ’s long-standing inflation target of two percent, which has been surpassed every month since April 2022.
Kuroda had argued that this was driven by temporary distortions — such as higher energy prices linked to the war in Ukraine — and as such, was no reason to move away from monetary easing measures.
Takahide Kiuchi, executive economist of Nomura Research Institute, said in a note last week that the demand-driven two-percent inflation the bank wants is hard to attain.
“Governor Ueda must be thinking that achieving the two percent inflation goal in a sustainable way would be difficult,” Kiuchi said.
Instead, the target could first be made more “flexible”, for example by setting it as a mid- to long-term goal, before reviewing current monetary easing tools, he suggested.
Bank of Japan to review, but maintain, easing measures
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