Bank of Japan Maintains Large-Scale Monetary Easing Policy... Keeps Short-Term Interest Rate at -0.1%

Short-term interest rate maintained at -0.1%
Unlimited government bond purchase policy continues
Economic growth rate forecast at 1.6% for next year

Kuroda Haruhiko, Governor of the BOJ.
Photo by EPA Yonhap News

[Asia Economy Reporter Lee Ji-eun] Japan's consumer prices in September rose at the fastest pace in 31 years, increasing inflationary pressures, while the Bank of Japan (BOJ) announced it will maintain its large-scale monetary easing policy as is.

According to Nihon Keizai, the BOJ decided at the monetary policy meeting held from the 27th until the morning of the same day to keep the short-term interest rate at -0.1%. The yield curve control (YCC) policy, which involves unlimited purchases of government bonds to keep the 10-year bond yield within ±0.25% of 0%, will also continue to be implemented.

Regarding asset purchases other than long-term government bonds, the BOJ will continue to purchase up to 12 trillion yen (approximately 116.28 trillion won) annually in index-linked exchange-traded funds (ETFs). However, whereas previously the purchase targets were decided based on market circulation ratios, from December the BOJ plans to change the purchase method to focus on the ETFs with the lowest holding costs.

Major foreign media outlets expect Governor Haruhiko Kuroda to maintain the accommodative monetary policy until his term ends in April next year, and the Kishida Fumio Cabinet to focus on creating a market environment conducive to wage increases.

Bloomberg stated, "Prime Minister Kishida supports Governor Kuroda's monetary policy cycle, which aims to raise prices to drive economic growth and wage increases," adding, "However, since this policy cannot ignore its impact on yen depreciation, the BOJ is expected to closely monitor the repercussions on financial market volatility."

The issue is that Japan's inflation rate has reached a historic high, raising concerns about inflation.

Japan's core consumer price index (CPI) for September recorded 3.0%, soaring into the 3% range for the first time in 31 years. The October Tokyo core CPI, a leading indicator of the national CPI, was recorded at 3.4%, marking the highest level in 40 years and 4 months since June 1982. Nihon Keizai Newspaper forecasts a high likelihood that the national CPI for October will exceed 3%.

On the other hand, the BOJ recently judged that inflation is temporary, projecting inflation rates of 1.6% for both 2023 and 2024, which is below the government’s target of 2.0%.

The 2022 consumer price index was revised upward from 2.3% to 2.9% as of July, citing soaring import prices due to yen depreciation. The gross domestic product (GDP) growth forecast was lowered from 2.4% to 2.0%.

Nihon Keizai Newspaper explained, "The reason the BOJ wants to maintain accommodative monetary policy is because it believes wage increases have not been sufficient," adding, "If wages do not rise, consumption is unlikely to be stimulated, and the current price increase trend will not last long, so it appears the BOJ intends to continue its monetary easing policy."

This content was produced with the assistance of AI translation services.