Mount Fuji, Japan

Japan Monetary Policy April 2023

Japan: New BoJ Governor Ueda’s dovish comments cause yen to slide

At its 28 April meeting, the first with new governor Kazuo Ueda as chair, the Bank of Japan (BoJ) made no changes to its key policy rate (-0.10%), nor to its yield curve control (YCC) policy, with the ten-year government bond yield target remaining at 0.00% with a tolerance band of -0.50–0.50%. The market expected this decision. The BoJ also announced a plan to review past policy moves, paving the way for the new governor to gradually wind down his predecessor’s huge monetary stimulus program.

The decision was expected by the market, but the yen tumbled regardless following dovish comments made by new BoJ governor Ueda. Ueda said that it would take “some time” for the BoJ to achieve its medium-run 2.0% inflation target and that “the risk of missing our price target with premature monetary tightening is bigger than the risk of experiencing inflation exceeding 2.0% due to delayed tightening”. The BoJ said it would take between a year and one-and-a-half years to complete the policy review, implying no drastic policy changes in the short term.

As such, the majority of our panelists expect Ueda and the BoJ to make no changes to the policy rate until H2 2024. Our panelists expect the BoJ to alter its cap on 10-year government bond yields sooner, during 2023. That said, the yield on 10-year government bonds has retreated since mid-March as a result of the Fed coming close to the end of its hiking cycle. This has reduced the pressure on the BoJ to adjust the cap on yields.

The Bank’s next meeting is scheduled for 16 June.

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