Tokyo – The Bank of Japan (BOJ) has decided to maintain its ultra-easy monetary policy despite stronger-than-expected inflation. The central bank remains focused on supporting the fragile economic recovery and addressing the global growth slowdown. Additionally, the BOJ has reiterated its commitment to sustain massive stimulus measures to achieve Japan’s 2 percent inflation target and wage increases.
Although price rises are becoming more widespread, the market is closely watching BOJ Governor Kazuo Ueda’s post-meeting news conference for a stronger warning on the risk of inflation overshoot. The recent decline in the yen, which drew a verbal warning from the finance minister, may also contribute to elevated inflation and put the BOJ’s ultra-low interest rates under scrutiny.
Finance Minister Shunichi Suzuki stated that excessive volatility in the yen is undesirable and expects the BOJ to work closely with the government to achieve its inflation target in a sustainable manner.
The BOJ’s decision comes after the Federal Reserve’s pause on interest rate hikes, as they monitor the lagged impact of previous monetary tightening. As anticipated, the BOJ maintained its short-term interest rate target of -0.1 percent and a 0 percent cap on the 10-year bond yield under its yield curve control policy.
While acknowledging the risks to the global outlook, the BOJ remains optimistic about Japan’s economy, anticipating a moderate recovery due to increased consumption following the pandemic.
Japan’s core consumer inflation reached 3.4 percent in April, remaining above the BOJ’s target for over a year. This has led to market expectations that the BOJ will phase out its yield curve control policy sometime this year. However, the European Central Bank’s recent decision to raise borrowing costs highlights the dangers of misinterpreting early signs of persistent inflation.
Japan’s economy is slowly recovering from the pandemic, with a 2.7 percent expansion in the first quarter driven by robust corporate and household spending despite weak exports.
Japan maintains growth focus and signals the end of crisis-mode fiscal largesse.
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