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Tokyo (AFP) – Change will wait: the Bank of Japan (BoJ) did not modify its ultra-accommodating monetary policy on Wednesday, contrary to the expectations of some speculators, which immediately caused the yen to sink once morest the dollar and the euro.
The BoJ kept its negative short-term rate at -0.1% and did not raise the ceiling on Japanese 10-year bond yields that it tolerates, following having raised it by surprise to 0.5. % last month, which had reignited speculation that monetary tightening was imminent.
The BoJ assured in December that this adjustment was only intended to correct distortions in the Japanese public debt market caused by its own policy, and should not be interpreted as the start of monetary tightening.
But many investors gave little credence to this justification and began to speculate on a quick normalization of its monetary policy, which would be more favorable to yen-denominated financial assets.
This forced the BoJ to further step up its purchases of Japanese government bonds (JGBs). And despite his efforts, their 10-year yields had crossed its 0.5% red line several times in recent days.
– Slowdown in inflation in 2023 –
The institution also revised its macroeconomic forecast for Japan on Wednesday.
While it slightly raised its inflation forecast for the current financial year 2022/23 (which will end on March 31), to 3% once morest 2.9% previously, it has on the other hand left unchanged its outlook for 2023/ 24, at 1.6%.
It also raised its inflation forecast for 2024/25 to 1.8% from 1.6% previously.
But these new forecasts remain below the target reiterated on Wednesday by the BoJ to achieve a stable price increase of 2%, the raison d’être of its ultra-accommodating monetary policy for ten years.
This new outlook therefore does not change its view that the current acceleration of inflation in Japan should not last.
Because the rise in consumer prices in the Japanese archipelago was essentially stimulated last year by external factors: the surge in world energy and food prices in the wake of the war in Ukraine and the international sanctions once morest Russia, while prospects for growth and wage increases in Japan remain limited.
The BoJ has also revised its forecast for Japanese GDP growth in 2022/23 slightly downwards (1.9% once morest 2% previously). It also lowered its forecasts for 2023/24 (1.7% once morest 1.9% previously) as for 2024/25 (1.1% once morest 1.5%).
Postponed?
On the foreign exchange market, the dollar jumped to 131.15 yen around 04:00 GMT once morest 128.5 yen before the announcements of the BoJ. The euro also strengthened significantly, to 141.25 yen once morest 138.5 yen before the BoJ.
The fall of the yen gave wings to the Tokyo Stock Exchange, because such an exchange rate trend is favorable to Japanese export stocks: around 04:00 GMT the flagship Nikkei index climbed by 2%, while it was only slightly progress before the midday break of the market.
As for the ten-year yields of the JGBs, they fell back to 0.39% around 0350 GMT while they had risen beyond 0.5% before the announcements from the Japanese central bank.
Nevertheless for many observers, the BoJ’s change of course is only a postponement: “Speculation will persist” on a revision of its policy this year, according to Takahide Kiuchi, economist at the Nomura research institute and former senior BoJ official.
Investors should now focus on who will replace its current governor Haruhiko Kuroda, who will complete his second and last term in early April.
The BoJ will have to “make its policy flexible”, regardless of Mr. Kuroda’s successor, said Mr. Kiuchi, interviewed by AFP ahead of Wednesday’s announcements.
© 2023 AFP
