Bank of Japan retains its ultra-loose policy, trims core inflation forecast

The Bank of Japan expectedly retained its ultra-loose monetary policy at its first meeting this year, while cutting its core inflation forecast for the next fiscal year.

The BOJ decided unanimously to keep interest rates at -0.1%, and stuck to its yield curve control policy that keeps the upper limit for 10-year Japanese government bond yield at 1% as a reference, according to a policy statement released Tuesday after a two-day meeting.

Yields on the 10-year JGBs inched lower, while the Japanese yen strengthened 0.1% to 148 against the greenback. The Nikkei 225 equity benchmark briefly hit a fresh 33-year high before paring gains.

All the economists surveyed by Reuters expected the Japanese central bank to maintain its negative rate policy this month — making the BOJ the world’s only central bank with negative rates. Governor Kazuo Ueda is scheduled to explain this decision in a press conference later this afternoon.

The market consensus is for the BOJ to abolish its negative rates regime at its April meeting at the earliest, once the annual spring wage negotiations confirm a trend of meaningful wage increases.

Japan’s central bank believes this trend would encourage consumers to spend and lead to a more sustainable and stable inflation, driven by domestic demand.

In its quarterly outlook on the Japanese economy, BOJ board members lowered their median growth forecast for core consumer prices — which it defines as inflation that excludes food prices — to 2.4% for fiscal 2024 starting this April, compared with 2.8% they estimated in October.

The central bank also marginally increased the core CPI inflation estimate for fiscal 2025 to 1.8% from 1.7% forecast earlier. The BOJ stuck to its previous median forecasts for the so-called “core core inflation” — inflation minus food and energy prices.

Japan’s core CPI slowed to 2.3% in December, easing pressure on the BOJ to normalize its policy — though this print has stayed above the BOJ’s stated 2% target for 21 straight months now.

This is a developing story. Please check back for more updates.