- BOJ keeps interest rate targets unchanged
- Revamps guidance, removes pledge to keep rates at low levels
- Quarterly report projects inflation to hit 1.6% in fiscal 2025
- Governor Ueda to hold news conference 0630GMT
According to Reuters article published on April 28, 2023, the Bank of Japan (BOJ) on Friday kept ultra-low interest rates but announced a broad review of its monetary policy, laying the groundwork for new Governor Kazuo Ueda to gradually phase out his predecessor's massive stimulus programme.
As widely expected, the BOJ made no changes to its yield curve control (YCC) policy, however, it modified its future guidance, removing a pledge to keep interest rates at "current or lower levels" and adding that it would "patiently continue with monetary easing" given economic uncertainty.
The yen tumbled and Japanese bonds and stocks rallied as the BOJ decision indicated the bank's new governor was in no rush to withdraw the monetary stimulus of his dovish predecessor, Haruhiko Kuroda, who retired this month after a decade at the helm.
The central bank also said it would look into various monetary easing measures taken over the past 25 years to beat deflation and their impact on the economy and prices.
"The Bank has decided to conduct a broad-perspective review of monetary policy, with a planned time frame of around one to one-and-a-half years," it said in a statement announcing the policy decision.
While the review could open scope for a future tweak to the BOJ's prolonged ultra-loose policy, some analysts said its long timeframe could mean any change will be slow in coming.
The yen hit a one-week low against the dollar, while Japanese government bonds rallied as investors seemed to discount the prospect of monetary tightening any time soon.
"The BOJ did upgrade the inflation forecasts, but at the same time, I think the hopes of a policy change have been somewhat dampened by the review, which is expected to last one to one-and-a-half years," said Moh Siong Sim, currency strategist at Bank of Singapore. "That might have dampened hopes of an imminent move in the policy setting."
The BOJ kept unchanged its YCC policy that set a short-term interest rate target of -0.1% and that for the 10-year bond yield around zero.
In fresh quarterly projections released on Friday, the board revised up its core consumer inflation to 1.8% in the current fiscal year ending in March 2024, and 2.0% in the following year, the report showed.
Under previous projections made in January, the BOJ expected inflation to hit 1.6% this year and 1.8% in fiscal 2024.
But the board projected inflation to slow to 1.6% in fiscal 2025 and said risks to that price outlook were skewed to the downside, suggesting the BOJ will be in no rush to hike rates.
Markets are focusing on Ueda's post-meeting news conference for clues on how soon the BOJ could phase out stimulus.
Broadening inflation pressures could test Ueda's communication skills by casting doubt over the BOJ's argument recent cost-driven price pressures will soon peter out.
Core consumer inflation in Japan's capital hit 3.5% in April, beating expectations and exceeding the BOJ's 2% target, while an index stripping away fuel costs rose at the fastest pace in four decades, data showed on Friday.
The BOJ's forceful defense of an implicit 0.5% cap set for the 10-year bond yield has drawn criticism for distorting the shape of the yield curve and draining bond market liquidity, heightening expectations that Ueda will soon phase out YCC.
