The Bank of Japan (BOJ) headquarters is seen beyond the cherry blossoms in Tokyo on March 20, 2023.
Kazuhiro Nogi | Afp | Getty Images
The Bank of Japan left its interest rates unchanged in newly appointed Governor Kazuo Ueda’s first policy meeting.
The decision was in line with economist expectations for no changes to the benchmark interest rate, which has been held at -0.1% since the central bank took rates below zero in 2016.
The central bank also kept the tolerance range for 10-year Japanese government bonds unchanged at 50 basis points above and below its target of 0%.
In December, the central bank shocked global bond markets by unexpectedly widening its tolerance range for 10-year Japanese government bonds from 25 basis points to 50 basis points above and below 0%.
Ueda has emphasized inflation needs to be “quite strong and close to 2%” — the central bank’s target — before making any adjustments to the yield curve control policy.
Reuters reported the central bank purchased more than $1 trillion worth of JGBs to defend its monetary policy last year.
“There remains some uncertainty in the Japanese real economy, but at the same time, inflationary pressures is becoming more imminent,” Hiromi Yamaoka, a former official at the Bank of Japan and the current head of Future Institute of Research told CNBC’s “Squawk Box Asia” on Friday ahead of the announcement.
“It’s a difficult situation but BOJ has to pay attention to price stability as the primary purpose of a central bank,” Yamaoka said, but added the central bank needs to focus more on increased inflation pressures, rather than the real economy.
In order to juggle both, Yamaoka said “they cannot continue the current extraordinary intervention in the JGB market.”
Inflation still above target
Inflation in Japan’s capital city ticked higher in April, according to government data released Friday ahead of the BOJ decision.
The consumer price index in Japan’s capital city rose 3.5% in April, exceeding forecasts in a Reuters poll for a 3.2% increase. That figure is also slightly higher than the 3.2% reading in March.
Excluding fresh food and energy, Tokyo’s consumer price index rose 2.3% in April — slightly above the central bank’s inflation target of around 2%.
Inflation in Tokyo is a leading indicator of the nationwide trend. Japan’s nationwide core CPI was at 3.1% in March.
Local newspaper Sankei reported earlier this week that the Bank of Japan is expected to launch a review of policies to “understand reasons behind Japan’s stagnant economy and design more effective measures” under Ueda.
Meanwhile, Japan’s unemployment rate rose to 2.8% in March from 2.6% in February, government data showed.
That’s higher than Reuters’ forecast for 2.5% and marks the highest reading since January 2022.
The nation’s jobs-to-applicant ratio was at 1.32, below Reuters’ estimate of 1.34.
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