Japan’s new central bank governor sticks to negative rates, announces policy review

The headquarters of the Bank of Japan (BOJ) is seen beyond cherry blossoms in Tokyo on March 20, 2023.

Kazuhiro Nogi | AFP | Getty Images

The Bank of Japan left interest rates unchanged during the first political meeting of the new governor Kazuo Ueda.

The decision was in line with economists’ expectations of maintaining the benchmark interest rate, which has been kept at -0.1% since the central bank took rates below zero in 2016.

The central bank also kept the tolerance band for 10-year Japanese government bonds unchanged at 50 basis points above and below its 0% target.

In December, the central bank shocked global bond markets by unexpectedly widening its tolerance band for 10-year Japanese government bonds 25 basis points to 50 basis points above and below 0%.

The Japanese yen weakened 0.8% to 134.75 against the US dollar after the announcement.

Upcoming policy review

From a separate perspectivethe central bank forecasts inflation for all items excluding fresh food and energy around 2.5% for the 2023 financial year, and between 1.5% and 2% for 2024 and 2025.

Ueda has already underline inflation must be “fairly strong and close to 2%” – the central bank’s target – before making adjustments to the yield curve control policy.

Inflation still above target

Local journal Sankei reported earlier this week that the Bank of Japan is expected to launch a policy review to “understand the reasons behind Japan’s stagnating economy and design more effective measures” under Ueda.

Meanwhile, Japan’s unemployment rate rose from 2.6% in February to 2.8% in March, according to government data.

That’s higher than Reuters’ forecast for 2.5% and marks the highest reading since January 2022.

The country’s job-to-candidate ratio was 1.32, below Reuters’ estimate of 1.34.

More uncertainty ahead

We expect the Bank of Japan to maintain yield curve control today, research institute says

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