BoJ Keeps Monetary Stimulus Unchanged; Lifts Inflation Outlook

The Bank of Japan maintained its negative interest rates and yield targets, as widely expected, and forecast inflation to breach the 2 percent target before falling back in the next fiscal year.

The policy board, governed by Haruhiko Kuroda, on Thursday, voted 8-1, to maintain a negative interest rate of -0.1 percent on current accounts that financial institutions maintain at the central bank.

The bank will continue to purchase a necessary amount of Japanese government bonds without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

The bank will also 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.

With the BoJ’s bond holdings now equivalent to more than half of the outstanding stock and its stifling presence threatening to suffocate the functioning of the bond market, there is still a good chance that the Bank will widen the tolerance band around its yield target, Capital Economics economist Marcel Thieliant said.

Raising CPI outlook for the forecast period, the BoJ said inflation will exceed the 2 percent target in the fiscal 2022 before decelerating next year.

The bank forecast consumer prices less fresh food, to climb 2.3 percent in FY2022 instead of 1.9 percent estimated in April.

In FY2023, inflation is seen at 1.4 percent, up from the prior 1.1 percent. Similarly, the projection for FY 2024 was lifted to 1.3 percent from 1.1 percent.

The real GDP outlook for the fiscal 2022 was downgraded to 2.4 percent from 2.9 percent, citing a slowdown in overseas economies and the intensification of supply-side constraints.

However, the projected growth rates are somewhat higher, partly owing to a rebound from the lower projection for fiscal 2022. The bank raised its outlook for 2023 to 2.0 percent from 1.9 percent and that for 2024 to 1.3 percent from 1.1 percent.

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