Bank Of Japan Interest Rate Unchanged, Inflation Outlook Surges

Following its monetary policy meeting, the Bank of Japan opted to maintain its interest rate at 0%-0.1%. This decision was in accordance with expectations set by economists surveyed by Reuters. In light of Tokyo’s April inflation figures falling below projections, with core inflation at 1.6% compared to 2.2% anticipated by analysts.

Bank Of Japan Interest Rate Remains Steady

The Bank of Japan affirmed its commitment to bond purchases as per the March decision, having previously disclosed purchases of around ¥6 trillion ($83.5 billion) worth of bonds monthly.

However, any commentary regarding the yen’s trajectory was omitted from the monetary policy statement. Yen has exhibited a consistent weakening trend since the BOJ’s cessation of its negative interest rate policy last month and discontinuation of its yield curve control policy.

After the decision of keeping rates steady, the currency breached the 156 mark against the U.S. dollar, recently trading at 156.7. During a subsequent press conference, BOJ Governor Kazuo Ueda clarified that while the bank’s monetary policy does not directly influence currency rates, fluctuations in exchange rates could significantly impact Japan’s economy and prices.

Furthermore, Ueda remarked that “if yen moves have an effect on the economy and prices that is hard to ignore, it could be a reason to adjust policy.” In addition, he acknowledged that the weak yen has yet to exert a substantial influence on underlying inflation. However, Ueda also cautioned that “prices are overshooting as a whole,” with a potential risk of Japan experiencing another period of cost-push inflation.

Moreover, Ueda emphasized the multifaceted evaluation of underlying inflation. He stated, “In gauging underlying inflation, we won’t look at single data. We will look at various indicators and economic factors behind the price moves such as the output gap and inflation expectations.”

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Inflation Outlook Revised

Additionally, the central bank unveiled its second-quarter economic outlook for Japan, revising its inflation forecast for fiscal 2024. The estimate has been raised to a range of 2.5% to 3%, from January’s projection of 2.2% to 2.5%.

Subsequent to this period, inflation is anticipated to moderate to “around 2%” in fiscal 2025 and 2026, as indicated by the bank. However, the BOJ tempered its gross domestic product growth forecasts for fiscal 2024 to a range of 0.7% to 1%, down from the previously predicted 1%-1.2% growth in January.

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