(Bloomberg) -- The Bank of Japan kept its monetary policy settings steady and indicated it was a little more confident about hitting its price goal while offering no clear hint over the likely timing of a potential end of the negative interest rate.
The BOJ maintained its -0.1% short-term rate and kept yield curve control parameters intact at the end of a two-day meeting, according to its statement Tuesday. The decision initially weakened the yen against the dollar before it swung to a small gain as investors digested the implications of the decision. Japanese stocks erased most of an earlier advance.
The BOJ said the certainty of hitting its price target was continuing to gradually increase, indicating that the bank is getting a little more confident about achieving its goal and is still on track for a rate hike. That may have been a factor driving the switch in market reaction.
The bank cut its inflation forecast for the fiscal year from April to 2.4% from 2.8% in a quarterly outlook report. That implies price gains will continue to exceed its 2% target for some time, as has been the case since April 2022.
The policy decision was unanimously expected by BOJ watchers surveyed by Bloomberg. A major earthquake on New Year's Day and a deepening funding scandal engulfing Prime Minister Fumio Kishida's ruling party made this an inopportune time for Japan's first rate hike since 2007.
With the hold, the BOJ retains its status as global outlier on policy, as the Federal Reserve and European Central Bank hint at rate cuts later this year.
The yen weakened against the dollar immediately after the announcement, briefly hitting 148.55 per dollar, before giving up all the losses and strengthening to 147.86. The yield on 10-year government debt fell to 0.635%.
The stand-pat decision is unlikely to change the prevailing view among economists that the BOJ will raise rates at some point this year.
Rather than tweaking its forward guidance, the BOJ simply added a line suggesting that the certainty of achieving the inflation goal is gradually increasing, said Chotaro Morita, chief strategist at All Nippon Asset Management. “We won't know Governor Ueda's true intention until his press conference.”
What Bloomberg Economics Says...
“We expect Ueda to continue to strike a dovish tone at his press conference and carefully avoid making any definitive comments on the timing of when the BOJ may scrap its yield-curve control and negative rate policies.”
— Taro Kimura, economist
For the full report, click here.
Surveyed economists see April as the most liking timing for the end of the negative rate as it will provide time for the central bank to assess the results of annual pay negotiations. Higher raises are seen as a key element for securing a positive cycle of rising prices and wages that feeds into economic growth.
The swaps market indicated an 48% likelihood of a rate hike by the April meeting and 100% by the July gathering.
Prior to the Tuesday gathering, people familiar with the matter said BOJ officials were of the view that their price projections — around 2% or higher — are already high enough to justify ending the negative rate, and their focus now is on whether the certainty for the outlook will increase sufficiently.
Governor Kazuo Ueda will speak to reporters in the afternoon from around 3:30 p.m.
The recent weakening of the yen will probably prompt Ueda to avoid sounding too dovish. The yen around 150 keeps import costs high and adds to cost-push inflationary pressures, raising the risk of another blow to already weakened consumer spending.
Households contending with rising costs of living are already growing impatient with the prolonged massive monetary easing as a key price measure stays above the BOJ's 2% target.
Still, economists do not expect the governor to give any specific steer on when the bank will make its move.
“The BOJ has tried and failed to normalize its policy in the past and it's always at the back of their mind what will happen if they make a mistake again this time,” said economist Takeshi Minami at Norinchukin Research.
--With assistance from Erica Yokoyama, Yoshiaki Nohara and Brett Miller.
(Adds more details and market move)
More stories like this are available on bloomberg.com
©2024 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
