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BOJ Maintains Low-Interest Rates, Announces Policy Review

The Bank of Japan (BOJ) maintained ultra-low interest rates on Friday but announced plans to review its past monetary policy. This lays the foundation for new Governor Kazuo Ueda to phase out his predecessor's extensive stimulus program gradually.

Bank of Japan
Bank of Japan

Central Bank Removes Pledge for Future Flexibility

While keeping its commitment to "patiently" maintain the ultra-loose policy, the central bank removed a pledge to keep interest rates at "current or lower levels." This move provides more flexibility for future policy adjustments.

Ueda Emphasizes Waiting for Inflation Evidence

In a news conference, Ueda explained that the broad-based review wouldn't be tied to near-term policy changes and emphasized the need to wait for more evidence to confirm sustainable inflation at the 2% target.

Market Reaction to BOJ's Decision

The yen dropped, and Japanese bonds and stocks rallied on expectations that the BOJ's new governor would not quickly withdraw the monetary stimulus his dovish predecessor, Haruhiko Kuroda, implemented.

Review Timeline and Focus

Ueda stated that the BOJ would spend one to one-and-a-half years on the review, investigating various unconventional monetary steps taken over the past 25 years during Japan's deflation and low inflation battle.

BOJ Keeps YCC Policy Unchanged

At the two-day meeting on Friday, the BOJ maintained its yield curve control (YCC) policy with a short-term interest rate target of -0.1% and a 10-year bond yield target of around zero.

BOJ Updates Inflation Projections

In fresh quarterly projections, the BOJ revised its core consumer inflation to 1.8% for the current year ending in March 2024 and 2.0% for the following year. However, it projected inflation to slow to 1.6% in fiscal 2025 and stated that risks to the price outlook were skewed to the downside.