Bank of Japan keeps ultra-low rates, dovish guidance

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The Bank of Japan maintained ultra-low interest rates and dovish policy guidance on Friday, saying that risks to the economic outlook were skewed to the downside. Here are some analysts’ views on the decision and market reaction:

MARCEL THIELIANT, SENIOR ECONOMIST AT CAPITAL ECONOMICS

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“At first glance, (the upgrade in inflation forecasts) suggests that the bank is moving closer to tightening policy. However, we wouldn’t read too much into those numbers.

“With the government set to announce subsidies to electricity prices that could knock off as much as 1% point from inflation, inflation will be below 2% from early next year already. And with the global economy set to enter recession, the window for tighter policy is closing rapidly.”

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HIROAKI MUTO, ECONOMIST, SUMITOMO LIFE INSURANCE CO, TOKYO

“Basically it was no surprise as there was no change to the monetary policy besides how the BOJ buys ETFs, which was in line with the previous stance that the BOJ no longer buys ETFs unlimitedly – a de-facto tapering.

“BOJ’s price outlook appears to have shifted significantly. Previously, their view stressed a one-off inflation and it’s likely fade-out when excluding food and energy items. Now, the latest figures indicate their acknowledgement of cost-push inflation’s spill-over onto the consumer level.”

MASAYUKI KICHIKAWA, CHIEF MACRO STRATEGIST, SUMITOMO MITSUI ASSET MANAGEMENT, TOKYO

“It is interesting that the BOJ raised the outlook for inflation, but it is still saying it is transitory.

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“People were paying attention to the BOJ’s inflation outlook.

“Probably there’s some debate about whether the acceleration in the inflation rate will be temporary.”​

KYOHEI MORITA, CHIEF ECONOMIST, NOMURA SECURITIES IN TOKYO

“The BOJ will continue to be lagging behind the U.S. and Europe in tightening monetary policy. In fact it won’t be able to raise interest rates at least until the fiscal year beginning in April 2024, given that the pace and extent of inflation both undershoot that in the West.

“I think it’s natural for the government to focus on targeted fiscal spending to ease the pain of price hikes, while the BOJ continues with monetary easing in the name of policy mix.”

TAKAFUMI YAMAWAKI, HEAD OF JAPAN RATES RESEARCH AT J.P.MORGAN SECURITIES JAPAN

“The outcome (of the BOJ’s policy meeting) was in line with expectations. Investors were buying bonds to cover their short positions ahead of the meeting so that was a sign that the market also had expected this.

“Yields may have not peaked yet, but the global trend of rising yields seems to be pausing now, which has made it easier for the Bank of Japan to keep its yield curve control policy.” (Reporting by Tokyo Newsroom and Asia Markets Team; Editing by Jacqueline Wong)