Japan BOJ Maintains Large-Scale Monetary Easing Policy... "Economic Uncertainty Very High"

The Bank of Japan (BOJ) announced on the 16th that it will maintain its large-scale monetary easing policy. The market had expected a surprise announcement since this was the first monetary policy meeting held after Kazuo Ueda's inauguration as BOJ Governor, but there was no unexpected change.

After concluding the two-day monetary policy meeting held from the 14th, the BOJ stated its intention to continue the large-scale monetary easing policy. Accordingly, the short-term interest rate remains fixed at -0.1%, and the allowable fluctuation range for the 10-year government bond yield, a long-term interest rate indicator, is maintained at ±0.5%. The measure to increase the money supply by purchasing index-linked exchange-traded funds (ETFs) will also continue.

Kazuo Ueda, Governor of BOJ.
Photo by Yonhap News

The BOJ mentioned the possibility that Japan's currently rising inflation curve could decline in the future, emphasizing the need to maintain the easing policy. In a statement, the BOJ said, "Although prices are rising, it is expected that the rate of inflation will narrow at the point when the impact of price increases due to rising import prices decreases," and stressed, "Economic uncertainties surrounding Japan, such as the overseas economy and resource prices affected by the Russia-Ukraine war, remain extremely high." The BOJ indicated that Japan's inflation rise is a temporary phenomenon caused by increases in international energy and raw material prices, and it is difficult to say that inflation has stabilized.

Meanwhile, this monetary policy meeting attracted market attention as it was the first meeting held after Governor Ueda's inauguration. Some had hoped for a surprise announcement similar to that in December last year, but Governor Ueda stuck to the existing policy. As a result, the market significantly revised its previous forecasts that expected policy changes this month or next month. The newly observed possible timing for policy changes in the market is the second half of next year. Taro Kimura, an analyst at Bloomberg Economics, referred to Governor Ueda's past case in the 2000 monetary policy meeting where he voted against ending the zero interest rate policy, and predicted that he would prefer gradual adjustments rather than short-term changes.

The Nihon Keizai Shimbun reported, "Governor Ueda is cautious about hastily changing policy and undermining the seeds of economic virtuous cycles, preferring to maintain the current monetary policy rather than risk uncontrollable inflation," adding, "However, if he shows a bold assessment of inflation, there is a higher possibility that policy changes could occur suddenly."

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