Bank of Japan keeps its ultra-low policy unchanged

The Bank of Japan decided to keep its ultra-easy monetary policy unchanged at the end of its two-day policy meeting. This includes maintaining a short-term rate target of -0.1% and a 10-year bond yield target around 0%. The central bank has held negative interest rates since 2016.

Despite keeping the current policy in place, the BOJ signaled a growing confidence that conditions for phasing out its massive stimulus are falling into place. This suggests that an end to negative interest rates may be nearing.

Governor Kazuo Ueda mentioned that the likelihood of Japan sustainably achieving the BOJ’s 2% inflation target was gradually increasing. He highlighted recent steady rises in service prices. The central bank looks for further evidence of a positive wage-inflation cycle before considering the continuation of various steps under their stimulus program.

Analysts expect the BOJ to end negative interest rates sometime this year, with April being seen as a likely timing for this change.

The BOJ, in its report, cut its core consumer inflation forecast for the fiscal year beginning in April to 2.4% from the previous projection of 2.8% made in October. However, it slightly revised its forecast for fiscal 2025 to 1.8% from 1.7%.

Despite inflation exceeding the BOJ’s target for over a year, policymakers have decided to hold off on raising rates until there is more evidence that inflation will durably stay around 2%, accompanied by solid wage growth.

The BOJ’s policy meeting precedes those of the European Central Bank (ECB) and the U.S. Federal Reserve. Both the ECB and the Fed had aggressively tightened monetary policy the previous year, and there are contemplations of cutting interest rates ahead.