Bank of Japan: Review of the April Financial Policy Conference Decision
2023-05-02
■The Bank of Japan has decided to maintain its monetary easing policy and will conduct a comprehensive review of its implementation.
■There is no denying the delay in policy normalization, and in the foreign exchange market, in addition to the weakening of the US dollar, there is also a weakening of the Japanese yen to support the exchange rate between the US dollar and the Japanese yen.
At the financial policy meeting held on April 27 and 28, the Bank of Japan decided to maintain its current monetary easing policy framework, keep the policy of negative interest rate and 10-year treasury bond interest rate at zero, and set the allowable fluctuation range of long-term interest rate at about ± 0.5%. In order to achieve the sustained stability of the "2% price stability target", the Bank of Japan will continue to implement quantitative and qualitative monetary easing policies with short-term interest rate control (YCC). At the same time, the wording "assuming that short-term and short-term interest rates are at or below the current level" in the policy interest rate forward guidance has been removed, and the tendency to lower interest rates has been corrected. In the future, the Bank of Japan will conduct a comprehensive review of its monetary policy implementation over the past 25 years in approximately one to one and a half years.
In the Economic Price Situation Outlook Report released at the same time, the policy committee forecast (central value) for the core consumer price index (CPI, excluding fresh food). Due to wage increases and other reasons, the forecast for fiscal year 2023 (1.6% → 1.8% compared with the previous year) and fiscal year 2024 (1.8% → 2.0%) was raised from January. The growth rate of the newly added fiscal year 2025 has slowed down to 1.6% and is below 2%. The newly appointed President, Kazuo Ueda, stated at the press conference that "there is a risk of not being able to achieve the 2% price target due to being too eager to tighten policies." In the context of high economic uncertainty in Japan, he showed a lack of urgency in implementing policy normalization. However, he also pointed out that "if policy changes are needed, they will be implemented", which is also in response to policy reviews.
According to the Bank of Japan's economic and price outlook, the Bank of Japan will view economic and inflation forecasts from a risk-balanced perspective and decisively implement adjustments, including re-examining or cancelling the YCC policy. However, considering the lifting of negative interest rate policies, the Bank of Japan's exit strategy is lagging behind other major central banks. The market's expectations for the policy decisions of the Bank of Japan and the speech of the new president, Ueda, have decreased. Therefore, it is expected that policy adjustments in June and July may be postponed, which will have a supportive effect on the current exchange rate market and may drive the yen to strengthen and resist the depreciation of the US dollar.
■There is no denying the delay in policy normalization, and in the foreign exchange market, in addition to the weakening of the US dollar, there is also a weakening of the Japanese yen to support the exchange rate between the US dollar and the Japanese yen.
At the financial policy meeting held on April 27 and 28, the Bank of Japan decided to maintain its current monetary easing policy framework, keep the policy of negative interest rate and 10-year treasury bond interest rate at zero, and set the allowable fluctuation range of long-term interest rate at about ± 0.5%. In order to achieve the sustained stability of the "2% price stability target", the Bank of Japan will continue to implement quantitative and qualitative monetary easing policies with short-term interest rate control (YCC). At the same time, the wording "assuming that short-term and short-term interest rates are at or below the current level" in the policy interest rate forward guidance has been removed, and the tendency to lower interest rates has been corrected. In the future, the Bank of Japan will conduct a comprehensive review of its monetary policy implementation over the past 25 years in approximately one to one and a half years.
In the Economic Price Situation Outlook Report released at the same time, the policy committee forecast (central value) for the core consumer price index (CPI, excluding fresh food). Due to wage increases and other reasons, the forecast for fiscal year 2023 (1.6% → 1.8% compared with the previous year) and fiscal year 2024 (1.8% → 2.0%) was raised from January. The growth rate of the newly added fiscal year 2025 has slowed down to 1.6% and is below 2%. The newly appointed President, Kazuo Ueda, stated at the press conference that "there is a risk of not being able to achieve the 2% price target due to being too eager to tighten policies." In the context of high economic uncertainty in Japan, he showed a lack of urgency in implementing policy normalization. However, he also pointed out that "if policy changes are needed, they will be implemented", which is also in response to policy reviews.
According to the Bank of Japan's economic and price outlook, the Bank of Japan will view economic and inflation forecasts from a risk-balanced perspective and decisively implement adjustments, including re-examining or cancelling the YCC policy. However, considering the lifting of negative interest rate policies, the Bank of Japan's exit strategy is lagging behind other major central banks. The market's expectations for the policy decisions of the Bank of Japan and the speech of the new president, Ueda, have decreased. Therefore, it is expected that policy adjustments in June and July may be postponed, which will have a supportive effect on the current exchange rate market and may drive the yen to strengthen and resist the depreciation of the US dollar.