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Japan Monetary Policy April 2024

Japan: Bank of Japan holds policy rate in April despite plunging yen

After raising its policy rate for the first time in 17 years last month, at its meeting on 25–26 April, the Bank of Japan (BOJ) left it unchanged at 0.00–0.10%. The decision was unanimous and had been expected by the market.

The BOJ decided to leave rates unchanged as, according to its latest prices outlook, it judged that inflation will “be at a level that is generally consistent” with its 2.0% target through the end of its forecast horizon. The Bank slightly raised its projection for core inflation in FY 2024 and FY 2025 compared to its last estimates in January by 0.4 and 0.1 percentage points—to 2.8% and 1.9%—respectively, pointing to the recent rise in crude oil prices.

The hold came despite increasing pressure on the yen, which recently fell to the lowest level in 34 years; in a post-decision press conference, BOJ Governor Kazuo Ueda said that the weaker currency was having “no major impact” on price pressures.

The BOJ’s policy rate guidance in its outlook report remained dovish. The Bank said that it sees monetary policy remaining “accommodative” for the “time being” and will only adjust rates if its projections for economic activity and inflation are realized. Most of our panelists expect the BOJ to raise rates further this year, with some seeing increases in Q3 and the rest in Q4.

On the possible impact of the yen’s recent depreciation on monetary policy, Nomura’s Kyohei Morita said:

“At this stage, we see little worry that yen depreciation will cause Japan’s inflation trend to derail in an upward direction. While yen-denominated import prices are the first entry point by which a weaker yen affects prices in Japan, the rise in these import prices is still slow, at +1.4% y-y as of March. […] Although FX could come to affect monetary policy operations if it were deemed to be affecting the inflation trend, we do not expect the BOJ to hike rates with the primary aim of stabilizing the currency any time soon.”

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