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Japan Monetary Policy December 2023

Japan: BOJ sticks to dovish tone in December

At its 18–19 December meeting, the Bank of Japan (BOJ) left its policy rate at -0.10% and its cap on 10-year government yields at 1.00%. The decision was expected by the market.

Governor Kazuo Ueda, justifying the decision, stated that the BOJ’s projections continue to suggest that inflation will fall below the 2.0% target in the medium term. The BOJ appears to be persisting with a wait-and-see attitude, with the outcome of wage negotiations in spring in particular focus; those occurring last year led to the largest salary hike since 1993.

Ueda said that the BOJ was—unlike the Fed or the ECB—unlikely to explicitly telegraph future rate hikes. A slim majority of our panelists expect the BOJ to begin raising its policy rate in Q2 2024, with most of the rest expecting tightening later in the year. The 1.00% cap on 10-year government yields—known as yield curve control—is likely to be tinkered with sooner. A key factor to watch will be the spring wage negotiations, as well as commodity prices in light of the El Niño weather phenomenon and the Hamas-Israel war.

The Bank’s next meeting is scheduled for 22–23 January.

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