There were no surprises from the Bank of Japan (BoJ), which retained its ultra-accommodative monetary policy at the first meeting of 2024. The BoJ voted unanimously to maintain interest rates at -0.1% and retained its yield curve control policy, which keeps the upper limit for 10-year Japanese government bond yields at 1% as a reference.
The BoJ lowered its core inflation forecast for fiscal year 2024 to 2.4%, down from the 2.8% estimate in the October forecast. Core inflation excludes food prices.
Inflation has been much lower in Japan than in other major economies, but it has exceeded the BoJ’s 2% target for over a year. This has led to speculation that the central bank will tighten policy, and BoJ Governor Ueda and other senior BoJ officials have hinted that there will be a shift in policy.
Ueda has insisted that although inflation remains above 2%, he will not tighten policy until there is evidence that it is sustainable, such as higher wage growth. Japan’s wage negotiations will take place in March, and if workers receive higher wages, the BoJ might may tighten policy or at least hint at a policy change at the April meeting.
The BoJ remains the only major central bank to have a negative rate policy, but there has been growing speculation that the BoJ will tighten policy and lift rates into positive territory sometime this year. Unlike the Federal Reserve or the ECB, the BoJ tends not to be transparent about its plans and has surprised the markets in the past, which has triggered sharp movement from the Japanese Yen.
The USD/JPY currency pair rose 0.54% after the BoJ announcement but has pared some of these gains and is trading at 147.51 in the European session, up 0.39% on the day.
The main Japanese stock index, the Nikkei 225, opened the day at 36,605.30. It rose sharply and hit a new 34-year high at 32,966.44 but gave up these gains following the BoJ meeting. The Nikkei 225 fell 29.38 points (0.08%) on the day and closed at 36,517.57.
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