BoJ Interest Rate Decision and Governor Commentary
The Bank of Japan (BoJ) maintained its ultra-easy monetary policy settings, a move that was widely anticipated. This decision allows more time to assess if wage increases will sufficiently broaden to sustainably maintain the 2% inflation target. BoJ Governor Kazuo Ueda commented that higher wage prospects are gradually influencing sales prices, leading to a slow increase in service prices. He indicated that if evidence suggests a positive wage-inflation cycle is intensifying, the feasibility of continuing the massive stimulus program will be examined. Ueda expressed confidence in avoiding major irregularities in policy shifts. He also noted that the likelihood of achieving the 2% inflation target is gradually increasing, but it's challenging to quantify the progress.
Quarterly Report and Inflation Forecasts
In its quarterly report, the BoJ slightly lowered its core consumer inflation forecast for the fiscal year beginning April 2024 to 2.4% from the 2.8% projected in October, while slightly raising the forecast for fiscal 2025 to 1.8% from 1.7%.
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Open account Try demo Download mobile app Download mobile appCPI core forecasts:
- Core CPI fiscal 2023 median forecast at +2.8% vs +2.8% in October
- Core CPI fiscal 2024 median forecast at +2.4% vs +2.8% in October
- Core CPI fiscal 2025 median forecast at +1.8% vs +1.7% in October
GDP forecasts:
- 2023 1.8% vs. 2.0% in October
- 2024 1.2% vs. 1.0% in October
- 2025 1.0% vs. 1.0% in October
The report highlighted the balanced risks to economic activity and the need to monitor the intensification of the virtuous cycle between wages and prices. The BoJ reiterated its commitment to continue with Quantitative and Qualitative Easing (QQE) with Yield Curve Control (YCC) as long as necessary and won't hesitate to take additional easing steps if needed.
JPY Market Reaction
Following the BoJ's decision, the Japanese Yen (JPY) initially weakened against the US Dollar but recovered some ground as investors anticipate a potential exit from the negative interest rates regime by March or April. The likelihood of achieving the 2% inflation target, as noted in the BoJ's policy statement, supports this expectation.
Source: xStation 5
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