The Bank of Japan affirmed on Tuesday that the likelihood of the country’s economy reaching its 2% inflation target is gradually increasing. This announcement came after the central bank, as anticipated, maintained its ultra-loose monetary policy during its initial meeting of the year.
The unanimous decision by the BOJ included keeping interest rates at -0.1% and adhering to its yield curve control policy. According to the policy statement released after the two-day meeting, this policy maintains the upper limit for the 10-year Japanese government bond yield at 1% as a reference—a move in line with economist expectations polled by Reuters.
Governor Kazuo Ueda, speaking at a press conference in Tokyo, stated, “We were able to confirm that the economy is moving in line with our projections on inflation.” He emphasized that the core-core inflation forecast is at 1.9%, very close to the 2% target. The term “core-core inflation” excludes growth in food and energy prices, while “core inflation” excludes only food prices.
Ueda noted, “This is the biggest factor that made us more convinced than before that the likelihood (of sustainably achieving our price target) is gradually heightening.” However, he acknowledged the challenge of quantifying how close the economy has come to the target.
Following the announcement, the yen strengthened by 0.7% to 147.4 yen against the dollar. The Nikkei 225 equity benchmark closed 0.1% lower after briefly nearing a fresh three-decade high. Yields on the 10- and 30-year Japanese government bonds inched higher, while yields on shorter-term bonds crept lower.
In its quarterly outlook, the BOJ lowered its median growth forecast for core consumer prices to 2.4% for fiscal 2024, starting this April, down from the previous estimate of 2.8% in October. The decline was attributed to lower oil prices. The central bank marginally increased the core CPI inflation estimate for fiscal 2025 to 1.8% from the earlier forecast of 1.7%. However, it maintained its median forecasts for fiscal 2024 and 2025 for “core core inflation” at 1.9%.
The BOJ stated, “Underlying CPI inflation is expected to increase gradually toward achieving the price stability target, as the output gap turns positive and as medium- and long-term inflation expectations and wage growth rise… although there remain high uncertainties over future developments.”
Governor Ueda addressed the market consensus for the BOJ to normalize its rates at the April meeting, contingent on meaningful wage increases confirmed during the annual spring wage negotiations. The central bank believes such wage increases would stimulate consumer spending and contribute to sustainable and stable inflation driven by domestic demand.
Ueda mentioned, “If we expect real wages to remain negative for a very long period of time, that means achievement of our price target will be distant. But if we can foresee real wages turning positive, the fact real wages are negative now won’t necessarily prevent us from normalizing monetary policy.” The focus ahead will be on whether wage hikes will spread to prices, particularly service prices, he added.
