On Thursday, the Bank of Japan conducted its policy meeting in which it issued fresh forecasts for inflation, which showed that it would increase the bank’s target this year. Yet, it made no changes to its ultra-easy policy and signaled its intention of staying an outlier in a series of policy tightening by central banks all over the globe.
No policy tightening
Haruhiko Kuroda, the Governor of the Bank of Japan, said that there were absolutely no chances of tightening monetary policy in the near term. He said that they did not intend to raise interest rates in the country and they were not going to hike the cap of 0.25%, which is implicit in the 10-year bond yields of the bank.
Speaking at a news conference, the BOJ Governor said that the economy was still in the stages of recovery after the COVID-19 pandemic. He said that there had also been an outflow of income because of the country’s terms of trade, which had worsened.
Therefore, he said that they would stick to their easy policy for now in order to ensure that high corporate profits can result in moderate growth in both price and wages.
As had been expected, the Bank of Japan did not change its short-term rate from -0.1% and yields of 10-year bonds also stayed at 0%. The dovish language of the Bank of Japan distinguishes it from most of the major central banks in the world. They have all been hiking interest rates in order to quell the soaring inflation in their respective jurisdictions.
The European Central Bank has also joined the ranks of these central banks, as it hiked its interest rate after 11 years. Even though the inflation in Japan has exceeded the 2% target set by the Bank of Japan because of the rising commodity and fuel prices, it has stuck to its stance.
The monetary authority has reiterated several times that it is in no hurry at all when it comes to withdrawing the stimulus from the economy. This is because the economy is still weak and slowing growth globally clouds its outlook as well.
In a quarterly report, the BOJ said that there is a lot of uncertainty, which requires vigilance in terms of the movements in the currency markets, along with the impact they have on the prices and economy.
Going against the tide
The fresh forecast for core consumer inflation was raised by the board from 1.9% to 2.3% for the current fiscal year that would end in March 2023. The following year’s inflation forecast also increased from 1.1% to 1.4%.
However, it should be noted that the Bank of Japan reduced its growth forecast for the current fiscal year from 2.9% to 2.4%. It also warned that the COVID-19 pandemic, the increasing commodity prices, and the lingering supply bottlenecks could be potential risks. With companies hiking prices, the BOJ said that inflation was undoubtedly on the rise and would continue with wage hikes.