BOJ Decides to Maintain Monetary Policy after Dramatic Shift in March

The Yomiuri Shimbun
Bank of Japan Gov. Kazuo Ueda speaks during a press conference in Tokyo on Friday.

The Bank of Japan decided to maintain its monetary policy at its meeting Friday, guiding overnight lending rates to 0%-0.1%, as decided in its last meeting in March.

In the quarterly Outlook for Economic Activity and Prices report released after Friday’s meeting, the bank revised upward its forecasts for inflation rates excluding fresh food in fiscal 2024 and 2025 from its January forecasts and set a fiscal 2026 forecast at 1.9%.

At its March meeting, the BOJ decided to end its large-scale monetary easing policy, such as by lifting the negative interest rate policy and eliminating its yield curve control (YCC) measures.

The central bank has also pledged to keep purchasing about ¥6 trillion of long-term government bonds monthly, as it was decided in March. The bank decided to maintain the amount of its purchases because a reduction in the amount might cause a sharp rise in the bond interest rate.

The outlook for price inflation in fiscal 2024, as indicated in the Outlook Report, was revised upward in consideration of the higher price of crude oil since January and the high level of wage hikes presented at this year’s annual spring labor-management wage negotiations.

The forecast for fiscal 2026, which was presented for the first time, is 1.9%, which is near the bank’s 2% target.

Weak yen could have effect

The ongoing depreciation of the yen in the foreign exchange market could factor into policymaking if it has a big enough impact, BOJ Gov. Kazuo Ueda said on Friday.

“Exchange rate fluctuations are one of the critical factors affecting the economy and prices. They could be a criterion for monetary policy discussion or decision-making if they cause an unignorable impact on the underlying inflation rate,” he said at press conference after the meeting.

He then denied any impact of the weak yen on the bank’s inflation outlook, saying, “The yen’s depreciation has not had a significant impact on the underlying price inflation rate so far.”

Regarding the bank’s purchases of long-term government bonds, he said: “We are looking at reducing the amount at some point in the future. Unfortunately, we are not at a stage where we can give specific details of when this will happen.”