Bank of Japan Maintains Status Quo, Core Inflation Forecasts Trimmed

The Bank of Japan at its January monetary policy meeting maintained existing policy as widely expected. The BoJ kept unchanged its -0.1% target for short-term interest rates, and 0% for the 10-year government bond yield unanimously. Previously the BoJ adjusted the settings by shifting the hard ceiling from 0.50% to 1.00% in the yield curve control band of +/- 0.50%. No change to core-core inflation forecasts, but core inflation forecasts were trimmed. Bank of Japan Governor Ueda’s press conference dis to follow.

BOJ January 2024 Monetary Policy Decision Statement

“The Bank will maintain the target level of 10-year Japanese government bond (JGB) yields at around zero percent, it will conduct yield curve control with the upper bound of 1.0% for these yields as a reference and will control yields mainly through large-scale JGB purchases and nimble market operations.”

BOJ quarterly report:

  • Risks to economic activity generally balanced
  • Need to closely monitor whether virtuous cycle between wages and prices will intensify
  • Will continue with QQE with YCC as long as needed
  • Won’t hesitate to take additional easing steps if needed
  • Boj will patiently continue with monetary easing while nimbly responding to developments
  • Japan’s financial system has maintained stability on the whole
  • Uncertainty remains but likelihood of achieving sustained 2% inflation continues to gradually heighten
  • Japan’s economy likely to continue recovering moderately
  • Must be vigilant to financial, fx market moves and their impact on japan’s economy, prices
  • Inflation expectations gradually heightening
  • Core consumer inflation moving below 2.5%, partly reflecting moderate rise in service prices
  • Consumption continues to rise moderately
  • Inflation likely to gradually accelerate toward boj’s target through end of projected period in quarterly report
  • Japan’s output gap improving, likely to gradually expand ahead
  • Medium-, long-term inflation expectations heightening gradually
  • Positive cycle of rising wages, inflation to strengthen

Inflation Forecasts:

No change to core-core inflation forecasts:

  • Core-core CPI fiscal 2023 median forecast at +3.8 vs +3.8% forecast in the October Outlook Report
  • Core-core CPI fiscal 2024 median forecast at +1.9% vs +1.9% in October
  • Core-core CPI fiscal 2025 median forecast at +1.9% vs +1.9% in October

But core forecasts trimmed:

  • Core CPI fiscal 2023 median forecast at +2.8% vs +2.8% in October
  • Core CPI fiscal 2024 median forecast at +2.4% vs +2.8% in October
  • Core CPI fiscal 2025 median forecast at +1.8% vs +1.7% in October

GDP forecasts:

  • FY 2023 1.8% vs. 2.0% in October
  • FY 2024 1.2% vs. 1.0% in October
  • FY 2025 1.0% vs. 1.0% in October

Conduct of yield curve control

While significantly increasing the amount of JGB purchases, the Bank previously expanded the range of 10-year JGB yield fluctuations from the target level: from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points.

The Bank will offer to purchase 10-year JGBs at 0.5 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted. In order to encourage the formation of a yield curve that is consistent with the above guideline for market operations, the Bank will make nimble responses for each maturity by increasing the amount of JGB purchases even more and conducting fixed rate purchase operations.

Source: BoJ, Reuters

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