Bank of Japan Stays the Course
January 18, 2023
Investors had assumed that last month’s doubling of the daily cap on the 10-year Japanese government bond yield to 0.50% was not, as then claimed, a mere technical tweak of the policy of yield curve control meant to enhance market functionality but rather an initial start to exiting the policy altogether. This month’s BOJ policy message emphatically discourages such speculation, reverts to a dovish tone, promises to take additional measures and means to keep policy rates at present or lower levels, and attests that prospects for future inflation being sustainable at the 2% target have not yet emerged.
The Bank of Japan’s negative 0.10% short-term and 10-year JGB yield target of around zero percent were not modified. The 0.50% daily ceiling on 10-year JGB’s will be enforced more vigorously with asset purchases and other expanded operative techniques unveiled because bank officials are still dissatisfied that December’s move has thus far not improved market functionality to the degree intended. The interest rate decisions were made unanimously, and the policy review coincided with publication of an updated quarterly Outlook for Economic Activity and Prices. In such projected GDP growth in the coming fiscal 2023 that begins in April was revised downward to 1.7% from 1.9% assumed in the prior Outlook released in October and 2.0% that had been assumed in the July 2022 report. Core CPI inflation that is currently well above the 2.0% target is expected to drop to 2.0% by the middle of fiscal year (i.e., around September) and to average 1.6% for all of FY2023 and rise only to 1.8% in the following fiscal year. Growth in wages will be highly influential in guiding further policy. Officials continue to attach great uncertainty to their forecasts. With Governor Kuroda retiring in April, it’s fair to say that the central bank’s policy outlook likewise faces considerable uncertainty, since the policy framework has been inseparable from his personal stewardship.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan
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