Bank of Japan is expected to Keep Interest Rates Steady
The Bank of Japan is expected to keep interest rates steady this week and consider whether to offer clearer guidance on how it plans to reduce its huge balance sheet, in a slow but steady retreat from its massive monetary stimulus.
At the end of its two-day meeting on Friday, the BOJ is expected to keep its short-term policy rate target in a range of 0-0.1%.
The BOJ ended eight years of negative interest rates and other remnants of its radical stimulus program in March, on the view that prospects for inflation to durably stay around its 2% inflation target were heightening.
In the latest projections, made in April, the central bank expects core consumer inflation to hit 2.8% in 2024, before slowing to 1.9% in fiscal 2025 and 2026.
BOJ Governor Kazuo Ueda has said the central bank will hike rates further if it feels more convinced that underlying inflation will stay around 2% as it had projected in April.
Nakamura, a sole dissenter to the BOJ’s decision to exit negative interest rates in March, also warned of recent weak signs in consumption and slowing global growth. “Real wages need to turn positive and households’ disposable income to rise more, for a cycle of rising income and expenditure to strengthen,” he said, adding it was appropriate to maintain current monetary policy for the time being.
Ueda reaffirms intention to slow its bond-buying process
The BOJ has said it will proceed gradually in tapering bond buying with a focus on avoiding any abrupt spike in yields.
A Reuters poll showed nearly two-thirds of economists expect the BOJ to start tapering its monthly bond buying, now set around 6 trillion yen ($38 billion), on Friday.
The BOJ's decision to end negative rates in March has failed to reverse the currency's downtrend, driven largely by the market's focus on the huge U.S.-Japan interest rate divergence.
While speaking to parliament on Thursday, Bank of Japan (BoJ) Governor Kazuo Ueda stated that inflation expectations are gradually rising but have yet to reach 2%. Ueda said, "We are still scrutinizing market developments since the March decision. As we proceed in exiting our massive monetary stimulus, it's appropriate to reduce bond purchases."
While the comments suggest the BOJ is laying the ground for further interest rate hikes, Ueda cautioned that after such a long period without major changes in rates in Japan, it was difficult to assess the impact on the economy and what a neutral interest rate might be.
The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.