The Bank of Japan maintained its ultra-accommodative monetary policy on Thursday, despite inflation now clearly accelerating in the country and the sharp fall in the yen linked to rate hikes by other major central banks such as the US Fed.
The BoJ now expects consumer prices to rise by 1.9% in Japan (median data, excluding fresh food products) over the 2022/23 financial year starting on April 1, against a previous forecast of 1.1%.
But this is essentially imported inflation, because also excluding energy, the increase should be limited to 0.9% in 2022/23, the institution insisted.
Inflation excluding fresh food should also fall back to 1.1% in 2023/24, according to the BoJ, a forecast unchanged from the end of January. The institution also expects a rise in consumer prices of the same magnitude for 2024/25.
The Bank of Japan reconfirmed its objective of achieving inflation excluding fresh food of 2%, but it should not tighten its monetary policy even if this level were temporarily reached this year.
Because the current rise in consumer prices in Japan is caused by soaring energy and other raw material costs against the backdrop of the war in Ukraine, not by the virtuous circle of dynamic economic growth that would request.
The Japanese economy has not yet returned to pre-pandemic levels – GDP between January and the end of March may even have fallen slightly due to the Omicron wave, which again weighed on household consumption.
The BoJ also sharply reduced its growth forecasts for Japan on Thursday. It is now counting on GDP growth of 2.9% in 2022/23, against 3.8% previously, then 1.9% in 2023/24 (against 1.1% previously) and 1.1% in 2024/25.
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The monetary institution will continue to apply its negative rate of 0.1% on the deposits of financial institutions with it, in order to encourage them to lend and invest more in the real economy.
It also reconfirmed its policy of unlimited purchases of Japanese government bonds (JGB) to maintain their ten-year yields within a range of between -0.25% and 0.25%.
As this 0.25% ceiling is currently under pressure, the BoJ has intensified such purchases in recent weeks, sometimes carrying out market operations over several consecutive days.
To continue to defend its red line, the BoJ clarified on Thursday that it would henceforth offer to buy ten-year JGBs daily on weekdays and at the fixed rate of 0.25%, provided that it was almost certain to find sellers in these terms.