Japan: Ueda leaves policy rate and YCC unchanged in June, but leaves door open to shift in July
At its 16 June meeting, as expected by the market, the Bank of Japan (BoJ) made no change to its key policy rate (-0.10%), nor to its yield curve control (YCC) policy, with the 10-year government bond yield target remaining at 0.00% with a tolerance band of minus 0.50–0.50%.
The hold in June came as little surprise, given that little had changed with regard to the economic panorama over the preceding month. In June, as in prior months, the BoJ stressed that it would only begin tightening monetary policy once it had achieved the “price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases.” This target remains unlikely to be achieved at present, pushing the BoJ to stand pat, with inflation set to ease below the BoJ’s 2.0% target by Q4 of this year. While trade unions clinched the highest pay increase since 1993 in this year’s annual wage negotiations, the figure—3.7%—is anemic compared to the Eurozone and the U.S. In addition, the malfunctioning of the government bond market has eased recently due to the U.S. Fed coming close to the end of its hiking cycle. Trust banks—often seen as proxies for pension funds—purchased a record amount of government bonds with a term of more than 10 years in May, reducing the pressure on the BoJ to tinker with YCC policy.
Looking ahead, 25 of the 28 panelists polled by FocusEconomics expect the BoJ to leave the policy rate unchanged this year, with expecting the Bank to only make changes in H2 2024. Changes to YCC policy are likelier in the short term; BoJ governor Kazuo Ueda said the upcoming July meeting “may have a different result to the one before”; our panelists expect the yield on 10-year government bonds to breach the 0.50% ceiling by the end of Q3 of this year.
The Bank’s next meeting is scheduled for 28 July.