On Tuesday, the Bank of Japan made the anticipated decision to maintain its flexible monetary policy. This choice reflects the officials’ intention to wait for additional data to roll out in order to assess whether wage growth is effectively contributing to the sustained achievement of the 2% inflation target.
The bank’s current policy guidance remained unchanged, disappointing certain investors who had hoped for a shift in the policy regarding negative interest rates.
Kazuo Ueda, the Governor of the Central Bank of Japan, noted that while prices and wages were moving in a positive direction, significant uncertainty remained.
During a news conference, Ueda stated that the potential for inflation to accelerate toward their target was gradually increasing. However, the policymakers still had to carefully analyze whether a sustainable inflation and wage growth cycle would establish itself.
Following the two-day meeting that ended on Tuesday, the bank maintained its short-term interest rate at minus 0.1%, the 10-year government bond yield near zero, and the yield cap at 1.0%.
The bank expressed readiness to implement additional policy easing measures if deemed necessary, given the "extremely high" uncertainty in the economic outlook.
The announcement led to a decline in the Japanese yen and an increase in futures on stocks in the country.
Japan has experienced inflation rates above 2% for over a year, with some companies expressing willingness to continue raising wages, potentially influencing future monetary policy changes.
In July, the bank eased control over long-term borrowing costs by raising the cap on 10-year bond yields. Following this, in October, it further alleviated restrictions, marking a gradual move away from dramatic stimulus measures taken by its predecessor.
According to a Reuters poll, over 80% of economists anticipate the Bank of Japan to terminate its negative interest rate policy next year, with half expecting this shift to occur in April. Some speculate that changes could take place as early as January.
The BoJ's decisions could be complicated by changes in global monetary policy, particularly signals from the US Federal Reserve and the ECB indicating the end of rate hikes.
Rate hikes in Japan amid other central banks' rate cuts could potentially lead to a yen appreciation, hurt the profits of major manufacturers, and affect their willingness to increase wages.
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