Despite High Inflation and Weak Yen, We Stay Our Course... Bank of Japan Maintains Large-Scale Monetary Easing

by Jeong Hyunjin

Published 22 Sep.2022 13:48(KST)

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The Bank of Japan (BOJ) decided on the 22nd to maintain its large-scale monetary easing policy. While major central banks such as those in the United States and Europe are raising interest rates due to high inflation, the BOJ is sticking to its monetary easing policy.

According to the Nihon Keizai Shimbun and others, the BOJ announced that at the two-day monetary policy meeting held until that day, it decided to keep the short-term interest rate at -0.1% and maintain large-scale monetary easing by purchasing an unlimited amount of long-term government bonds as needed to guide the 10-year government bond yield, a long-term interest rate indicator, to around 0%.

Despite rising inflation and the yen's depreciation to its lowest level in 24 years, the BOJ stated it would continue its large-scale monetary easing policy. Following the BOJ's announcement, the yen-dollar exchange rate in the Tokyo foreign exchange market rose to the 145 yen level during the session. The yen-dollar exchange rate reaching the 145 yen level is the first time in 24 years since August 1998.

The depreciation of the yen was driven by the U.S. Federal Reserve's (Fed) interest rate hike. On the 21st (local time), the Fed decided at the Federal Open Market Committee (FOMC) regular meeting to raise the benchmark interest rate by 0.75 percentage points to 3.00?3.25%. As a result, the interest rate gap between the U.S. and Japan has widened further.

Japan's consumer prices continue to rise. On the 20th, Japan's Ministry of Internal Affairs and Communications announced that the consumer price index for August (excluding fresh food) rose 2.8% year-on-year. This was the highest inflation rate in 7 years and 10 months since October 2014, when it recorded 2.9%.