Bank Of Japan Maintains Ultra Loose Policy Stance

The Bank of Japan maintained its ultra-expansionary policy stance on Friday and affirmed that it will not hesitate to take additional easing measures when necessary, thus going against the trend of raising interest rates adopted by its peers.

The central bank left the policy rate unchanged at -0.10 percent as expected and reaffirmed that it will purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

The BoJ board voted 8-1 to retain the policy rate and the 10-year JGB yield target at around zero percent.

The central bank also retained its forward guidance to purchase 10-year JGBs at 0.25 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted.

The bank reiterated that it will continue with quantitative and qualitative monetary easing with yield curve control, with an intention to achieve the inflation target of 2 percent, as long as it is necessary.

The BoJ also decided to continue with the expansion of the monetary base until the inflation exceeds 2 percent and stays above the target in a stable manner.

The bank repeatedly said that it will not hesitate to take additional easing measures if required and expects short- and long-term policy interest rates to remain at their present or lower levels.

The BoJ had conducted additional bond purchases earlier this week as the policy tightening stance by major central banks put pressure on the 0.25 percent yield cap on Japanese government bonds.

The bank said on Friday that it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices.

The U.S. Federal Reserve on Wednesday raised the target rate for the federal funds rate by a larger-than-expected 75 basis points to 1.50-1.75 percent, which was the biggest rate hike since 1994.

The European Central Bank last week announced its intention to hike the rate by a quarter point in July. The Bank of England raised the rate for the fifth straight session on Thursday.

The Swiss National Bank on Thursday sprang a surprise by lifting its policy rate for the first time since 2007, thus joining its peers in the battle against runaway inflation.

In the latest report, the BoJ has lowered its view on exports and industrial production. The bank noted that exports and industrial production have continued to increase as a trend, but the effects of supply-side constraints have intensified lately.

At the same time, the bank lifted its assessment of consumer spending. With the impact of the pandemic waning, private consumption has picked up, particularly for services consumption, the bank said.

The BoJ said Japan’s economy is projected to continue growing, albeit more slowly, at a pace above its potential growth rate.

Inflation is forecast to be at around 2 percent for the time being due to the impact of rises in energy and food prices.

Nonetheless, the bank said inflation will decelerate thereafter as the positive contribution to the rise in energy prices to the CPI is set to wane.

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