The Bank of Japan Maintained the Loose Policy Setting Under its New Governor
Ultra-Loose Policy
In the first meeting under new Governor Ueda, the Bank of Japan voted unanimously to maintain its ultra-loose policy stance. Policymakers kept rates unchanged at -0.1% and Quantitative & Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), allowing 10-year JGB yields to rise up to 0.5%, before stepping in. [1]
The decision was largely anticipated, as Mr Ueda had not shown any intention to rock the boat, but expectations for policy normalization are building. The central bank had opened the door to that back in December, with the widening of its yield curve target to the current +/- 0.5% range that had surprised markets. [2]
Not All Stayed the Same
Although policymakers largely maintained the status quo, they made changes to their communication around the forward guidance. They dropped the pledge for "interest rates to remain at their present or lower level" of the previous policy statements, although they vowed to "patiently continue with monetary easing".
Furthermore, the central bank announced a "broad-perspective" review of monetary policy, with in a rather wide timeframe of one to one-and-a-half years.
Upgraded Inflation Projections
Today's decision was accompanied by the updated forecasts, which showed that the BoJ lowered its expectation around economic growth and raised them around inflation, for current Fiscal 2023 (April 2023-May 2024).
CPI Inflation (ex-fresh food) is now projected at median of +1.8% (from +1.6% previously) and is expected to go higher to 2% in Fiscal 2024. Real GDP forecasts for Fiscal 2023 were lowered to +1.4%, from +1.7% prior. [3]
Market Reaction
The Bank of Japan upgraded its inflation forecast, which creates some pressure for policy normalization, but officials elected to maintain the ultra-loose setting and although they tweaked the communication, they still expect to continue monetary easing.
Immediate market reaction was negative for the Japanese Yen, sending USD/JPY higher.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 28 Apr 2023 https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2023/k230428a.pdf | |
| Retrieved 28 Apr 2023 https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2022/k221220a.pdf | |
| Retrieved 27 Sep 2023 https://www.boj.or.jp/en/mopo/outlook/gor2304a.pdf |
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