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Bank of Japan to keep rates ultra-low, on hold until global outlook clears

By Leika Kihara

TOKYO (Reuters) – The Bank of Japan will keep interest rates ultra-low and dovish guidance next week, signaling its determination to hold off on unwinding stimulus until it is clear It is clear that the economy can withstand the blow from a slowdown in global growth.

The decision will follow the Fed’s latest rate hike on Wednesday, cementing the Bank of Japan’s status as a wave of dovish outliers as its peers continue to tighten monetary policy in response to soaring inflation.

Bank of Japan Governor Haruhiko Kuroda stressed the need to keep policy ultra-loose as Japan’s economy is still only just beginning to recover from the pain of the coronavirus pandemic.

The Bank of Japan is widely expected to maintain its short-term interest rate target of -0.1% and zero percentage caps on bond yields for one year, all set in accordance with their Yield Curve Control (YCC) policy.

Investors focused on Kuroda’s post-meeting moves for clues on the policy outlook. Speculation is rife that the BOJ will adjust its policy when Kuroda’s second five-year term ends in April.

“While the BOJ may not change policy next week, markets will be looking for any change in the way the central bank describes its price outlook,” said Izuru Kato, chief economist at Totan Research. , as inflation is likely to remain around the 2% target for a long time next year. “

“If the U.S. economy avoids a deep recession and the Japanese economy is in fairly good shape, the BOJ may remove the yield cap around June or July next year,” he said.

With above-target inflation and the prospect of some wage growth, BOJ officials have started to drop signs of possible changes to the YCC next year.

The BOJ should review its Monetary policy framework and adjustments to its massive stimulus plan Regarding next year’s round of wage talks, board member Naoki Tamura told the Asahi Shimbun that it was a sign of growing focus on tax refunds, three sources familiar with its thinking said. Some have embraced the idea.

While BOJ officials have not ruled, they are in no rush given the possibility of policy adjustments next year, the sources said, given the expected slowdown in global growth. Pressure on exports.

The outcome of the wage talks, known as a “shunto,” will determine how quickly the central bank can wind down stimulus, they say. Talks between blue-chip companies and unions to begin on 3

“If wage growth is strong, the BOJ will then assess whether that strength can be sustained,” said one of the sources, echoing the views of two others.

Content with the status quo

The BOJ is comfortable with maintaining the status quo for now amid uncertainty over the global outlook and the pace of wage increases in Japan, sources said.

Japan’s core consumer prices rose 3.6% YoY in October, surpassing the Bank of Japan’s inflation target for the seventh month in a row, driven by soaring fuel and raw material costs.

JAPAN The central bank expects inflation to run below target next year as cost pressures dissipate.

But some analysts expect core consumer inflation to top 4% in the coming months and remain there for much of the time at around 2% next year, as companies continue to pass on rising costs to households.

A Teikoku Databank survey in November showed major food and beverage makers plan to cancel more than 4 , 000 prices, with increases concentrated in February.

Policy makers hope that wage growth next year will be sufficient to compensate for rising household living costs and help Shifting from cost-push inflation to demand-driven inflation.

If the Fed fails to curb inflation without pushing the U.S., any chance for the BoJ to adjust policy will disappear, analysts said, with the economy into a deep recession.

-ichi Life Research Institute in Tokyo.

“But if the global economy is in bad shape, the BOJ may send It is very difficult to phase out the stimulus now,” he said.



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