Bank of Japan Unanimously Holds its Ground
June 16, 2023
The Bank of Japan’s Board decision not to change policy settings at this week’s now-completed two-day scheduled review was made unanimously. Previously chronic dissenters on the Board have departed as a result of a recent shuffling that also coincided with retiring governor Haruhiko Kuroda being replaced by Kazuo Ueda. In press conference Q&A, Ueda stressed that the likeliest economic outlook isn’t the sole guide to policy, as officials must also weigh other scenario risks and the consequences of those alternative possibilities. From a policy response standpoint, fighting insufficient inflation is much harder than bringing down excessive inflation.
The Board wants to be sure that core consumer price inflation will remain somewhat above the targeted 2.0% threshold in a stable manner before shifting policy gears. Japanese inflation has exceeded that bar for a bit over a year, but amid high uncertainty related to global demand and future Japanese wage negotiations, a patient approach is still warranted. Ueda left vague when the 0.5% ceiling now imposed on the 10-day JGB yield will stay in effect. For now, “The Bank will continue to allow 10-year JGB yields to fluctuate in the range of around
plus and minus 0.5 percentage points from the target level, and will offer to purchase 10-year JGBs at 0.5 percent every business day through fixed-rate purchase operations.”
While the yen initially fluttered and dropped as low as 141.4 per dollar following the Bank of Japan announcement today, the Nikkei-225 equity index climbed further and, at 33607, shows a 31% year-to-date advance. Nonetheless, the index still remains a tad over 13% below its all-time high, and here’s the amazing part. That peak was reached on the last business day of the 1980’s, around a third of a century ago. So when investment experts confidently insist that equities always rise in the long run, know that even in this case there have been exceptions.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan
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