Kazuo Ueda, Governor of the Bank of Japan (BOJ), points out while speaking during a press conference at the central bank’s headquarters in Tokyo, Japan, on Tuesday, October 31, 2023.
Kiyoshi Ota | Bloomberg | Getty Images
The Bank of Japan is expected to leave its ultra-loose monetary policy unchanged at its final policy meeting of the year in light of the “extremely high uncertainty” affecting the world’s third-largest economy, pushing any potential unwinding into the new year.
Bank of Japan Decided unanimously Keeping interest rates at -0.1%, while also adhering to a yield curve control policy that keeps the upper bound for the 10-year Japanese government bond yield at 1% as a reference.
“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 of Japan said in a statement. Policy statement Tuesday.
The Japanese yen weakened after the Bank of Japan’s decision and was trading at around 143.5 to the dollar in midday trading, while the Nikkei 225 stock index rose 1%. The yield on 10-year Japanese government bonds was largely unchanged.
With the Bank of Japan likely to unwind its ultra-loose monetary policy and facing challenges from a slowing economy and slowing inflation, most economists expect Governor Kazuo Ueda to make changes only next year, once the annual spring wage negotiations confirm a trend for a significant wage increase.
Ueda is scheduled to meet the press in Tokyo later Tuesday, where he may provide future guidance on the Bank of Japan’s future course of action.
Comments from Ueda Earlier in December It raised expectations of a change in monetary policy, causing the yen to rise. The Bank of Japan has been cautious in unwinding its long-standing ultra-loose monetary policy, fearing that any premature move could jeopardize recent emerging improvements.
On Friday, the Japanese central bank also said it expects core inflation — which it defines as inflation that excludes food prices — to remain above 2% through fiscal 2024. Although core inflation has exceeded its stated 2% target for 19 straight months The Bank of Japan decided to “patiently continue” its ultra-loose monetary policy.
So-called “core core inflation” — inflation minus food and energy prices — has exceeded the Bank of Japan’s 2% target for 13 straight months now.
For the Bank of Japan, inflation is preferably driven by domestic demand, which is more sustainable and stable. The bank believes that wage increases would translate into a more meaningful spiral, encouraging consumers to spend.
In October, Japan’s umbrella workers’ union, Renju, said it would demand a pay rise of at least 5% in wage negotiations next spring. The union was able to secure the largest increase in three decades during this year’s talks in March.
The Bank of Japan’s monetary policy is complex and multifaceted due to the various quantitative easing tools it has used to revive the world’s third-largest economy in the past three decades.
Its ultra-easy stance also marks it as an outlier at a time when other major central banks have raised interest rates to combat stubbornly high inflation. This policy difference was partly responsible for the pressures on the Japanese yen and government bonds.
This is a developing story. Please check back for more updates.
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