- In a policy statement after its September meeting, the Bank of Japan said it would keep short-term interest rates at -0.1%.
- The Bank of Japan also capped the 10-year Japanese government bond yield at zero, as was widely expected.
An undated editorial image combining images of Japanese yen banknotes and stock market indicators.
Javier Gersi | moment | Getty Images
The Bank of Japan maintained its very accommodative policy and kept interest rates unchanged on Friday, taking into account the “extremely high uncertainty” over the growth outlook domestically and globally.
In a policy statement after its September meeting, the Bank of Japan said it would keep short-term interest rates at -0.1%, and cap the 10-year Japanese government bond yield around zero, as was widely expected.
“Given the very high uncertainty surrounding economies and financial markets at home and abroad, the Bank will patiently continue monetary easing, while responding nimbly to developments in economic activity and prices as well as financial conditions,” the bank said. The Bank of Japan said in its policy statement Friday.
At its previous policy meeting in July, the Bank of Japan eased its control of the yield curve to allow long-term interest rates to move more in tandem with higher inflation in Governor Kazuo Ueda’s first policy change since he took office in April.
Yield curve control is a policy tool whereby a central bank targets an interest rate, then buys and sells bonds as necessary to achieve that target.
The move to expand the permissible range for 10-year Japanese government bond yields by plus or minus 0.5 percentage point from its 0% target to 1% was seen as the beginning of a gradual departure from the yield curve control policy enacted by Ueda’s predecessor.
Many economists have brought forward their expectations for a faster exit from the Bank of Japan’s ultra-loose monetary policy to sometime in the first half of 2024 after… Ueda told the Yomiuri Shimbun In an interview published on September 9, the Bank of Japan said it could have enough data by the end of this year to determine when it could end negative interest rates.
Although core inflation has exceeded the Bank of Japan’s stated 2% target for 17 straight months, BOJ officials have been cautious about exiting the policy, which was put in place to combat decades of deflation in the world’s third-largest economy.
This is due to what the Bank of Japan sees as a lack of sustainable inflation, derived from meaningful wage growth which it believes will lead to a positive trickle-down effect supporting household consumption and economic growth.
Core inflation – which includes petroleum products but excludes volatile fresh food prices – reached 3.1% in August, supporting the Bank of Japan’s forecast.
Wage growth, the output gap — which measures the difference between the economy’s actual and potential output — and price expectations are among the factors the Bank of Japan has prioritized as meaningful drivers of inflation.
“Japan has the best opportunity in a generation to move from a deflationary environment to a slightly more inflationary one and has a degree of permanence,” said Oliver Lee, client portfolio manager at East Spring Investments.
“The main thing is wages. Japan needs to see real and sustained wage inflation, which could have a psychological impact on consumption,” he said. “We hope this is the start of a virtuous cycle of economic growth, but it is still too early to say whether this will work. We probably need another six to 12 months to see where we are on this front.”
Raising interest rates prematurely could hamper growth, while too late in policy tightening would weigh on the Japanese yen and increase the risk of financial fragility.
Any delay would put more pressure on Japanese Prime Minister Fumio Kishida, who pledged to help consumers cope with rising costs of living in a cabinet reshuffle last week. He also pledged to ensure that the world’s third-largest economy effectively emerges from recession with wage growth consistently exceeding the inflation rate.
Japan’s GDP growth during the April-June quarter was The rate rose to 4.8% on an annual basis From the initial reading of 6% due to weak capital spending.
While the output gap grew 0.4% in the second quarter to mark the first increase in 15 quarters, uneven domestic economic data and an uncertain global economic outlook made the matter more complex for policymakers.
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