Mount Fuji, Japan

Japan Monetary Policy July 2022

Japan: Bank of Japan keeps rates unchanged in June despite yen remaining at 24-year low

At its meeting ending on 21 July, the Bank of Japan (BoJ) kept its policy rate unchanged at minus 0.10% and kept its 10-year government bond yield target at 0.00%, as widely expected by the market. In order to reach the target, the BoJ commits to purchasing an unlimited number of government bonds as part of its “yield curve control” policy.

The combination of medium-run inflation forecasts remaining below target and an uncertain economic outlook pushed the BoJ to retain its monetary policy stance. The BoJ upped its inflation forecast for FY 2022 to 2.3% (from 1.9%) and for FY 2023 to 1.4% (from 1.1%). Even though the BoJ expects price pressures to be higher and more persistent than earlier projected, it still sees inflation falling to below target in the next fiscal year, reducing pressure to hike. The BoJ’s continued dovishness contrasted with the increasing hawkishness of central banks in other developed countries, causing the yen to remain at a 24-year low.

The BoJ maintained a dovish tone in its forward guidance: at a press event, Governor Kuroda said the BoJ had “no intention” of raising rates or widening the range of the yield target. That said, further depreciation of the yen could push the BoJ to tighten its monetary policy.

ING’s Min Joo Kang commented on the policy outlook:

“The Bank of Japan believes that robust growth is a prerequisite for stable inflation and a change in monetary policy. The Bank left its long-term yield target and asset purchase programme unchanged. The newly released outlook confirms that the BoJ will not change its policy stance anytime soon.”

The next monetary policy meeting is set to take place on 21–22 September.

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