On July 28, 2023, a pedestrian walked past the Bank of Japan (BoJ) building in central Tokyo.
Richard A. Brooks | AFP | Getty Images
The Bank of Japan kept its policy rate unchanged after its monetary policy meeting on Friday, keeping its benchmark policy rate at 0%-0.1%.
That was in line with expectations of economists polled by Reuters.
While the move was expected, it comes after Tokyo’s inflation in April was lower than expected, with core inflation at 1.6% versus Reuters’ forecast of 2.2%.
The Bank of Japan also said it would continue bond purchases in line with its decision in March. The bank previously said in March that it had purchased about 6 trillion yen ($83.5 billion) worth of bonds each month.
The Bank of Japan did not comment on this JPY Monetary policy statements have been softening since the Bank of Japan ended its negative interest rate policy and abolished yield curve control last month.
Following Friday’s decision, the currency broke above the 156 mark against the US dollar and was last trading at 156.7.
According to Reuters, Bank of Japan Governor Kazuo Ueda said at a press conference late on Friday that although the central bank’s monetary policy does not directly target the exchange rate, exchange rate fluctuations may have a “significant impact” on the Japanese economy and prices.
“If the yen’s movements have a significant impact on the economy and prices, this could be a reason to adjust policy,” Ueda added, according to remarks translated by Reuters.
According to Reuters, he noted that the yen’s weakness has not yet had a significant impact on underlying inflation, but noted that “overall prices are overshooting.” Ueda also said Japan could see another round of cost-push inflation, according to a translator.
Cost-push inflation refers to rising prices due to increased production costs, as opposed to demand-pull inflation, which occurs when demand exceeds supply.
“When measuring underlying inflation, we will not focus on a single data point. We will focus on various indicators and economic factors behind price movements, such as the output gap and inflation expectations,” Ueda said, according to a translator.
Inflation rises slightly
In addition, the central bank also released Japan’s second-quarter economic outlook and raised its inflation expectations for fiscal year 2024.
The Bank of Japan now expects inflation to be 2.5% to 3% in fiscal 2024, up from the 2.2% to 2.5% forecast in January.
The bank added that it expects inflation to fall to “around 2%” in fiscal 2025 and 2026.
The Bank of Japan also lowered its gross domestic product (GDP) growth forecast for fiscal 2024 to 0.7% to 1%, down from the 1%-1.2% forecast in January.
Loose policies remain unchanged
According to the outlook report, the Bank of Japan said that looking ahead, the implementation of its monetary policy will depend on future developments in economic and price conditions. But it said it would maintain accommodative financial conditions “for the time being”.
The Bank of Japan did acknowledge that uncertainty surrounding economic and financial developments at home and abroad remains high. But if the forecast comes true and underlying inflation rises, the central bank said it would “adjust the level of monetary accommodation.”
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