Bank of Japan leaves rates unchanged

Following a two-day meeting of it nine board members, the country’s central bank held the short-term interest rate at -0.1%, and left its yield curve control policy unchanged. The decision was unanimous.

In a statement, the BoJ – which is targeting 2% inflation – said: “With extremely high uncertainties surrounding economies and financial markets at home and aboard, the bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices, as well as financial conditions.”

Core inflation in Japan – the world’s third-largest economy – stood at 3.4% in April, and has been above the 2% target for more than a year.

First-quarter growth was revised sharply higher earlier this month, to 2.7%. The BoJ is forecasting the economy will recover “moderately” around the middle of fiscal 2023, although it believes commodity prices and a weaker global outlook will likely limit growth.

Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics, said: “New governor Kazuo Ueda has stuck to the existing BoJ view that the current bout of elevated consumer inflation is cost-push, stemming from higher import costs and the weak yen.

“[He] has warned of the danger of tightening too early and setting back Japan’s progress towards sustainable 2% inflation, which he sees as a greater risk than that of tightening too late. As such, the BoJ is likely to keep rates on hold for the rest of the year.”

Shigeto Nagai, head of Japan economics at Oxford Economics, said: “Despite upside surprises on the growth and inflation fronts, we believe the BoJ will maintain the status quo for another year or so to assess whether the economy is on track to achieving 2% inflation within governor Ueda’s five-year term.

“While ongoing structural changes pose high uncertainties, we project that CPI inflation will fall short of the 2% target even in 2028.”