Bank of Japan leaves policy unchanged, as widely expected

Bank of Japan leaves policy unchanged, as widely expected.

• BOJ maintains short-term interestst rate target at 0.5%

Board’s core CPI fiscal 2025 median forecast at +2.2% vs +2.4% in January

• Core CPI fiscal 2026 median forecast at +1.7% vs +2.0% in January
• Core CPI fiscal 2027 median forecast at +1.9%
• Core-core CPI fiscal 2025 median forecast at +2.3% vs +2.1% in January
• Core-core CPI fiscal 2026 median forecast at +1.8% vs +2.1% in January
• Core-core CPI fiscal 2027 median forecast at +2.0%

BoJ report: will continue to raise policy rate if economy, prices move in line with its forecast

• Japan’s economic growth likely to moderate
• Underlying consumer inflation likely to be at level generally consistent with 2% target in second half of projection period from fiscal 2025 through 2027
• Uncertainty surrounding Japan’s economy, prices remain high
• Must be vigilant to financial, FX market moves and their impact on economy, prices
• Risks to economic outlook skewed to downside
• Risks to inflation outlook skewed to downside
• Japan’s economy recovering moderately, although some weaknesses are seen
• Real interest rates are at significant low levels
• Will conduct monetary policy as appropriate from perspective of sustainably, stably achieving 2% inflation target

BOJ report on risks: trade policy recently announced in each jurisdiction is likely to push down domestic and overseas economies through various channels.

• Introduction of wide-ranging tariffs is expected to impact global trade activity, uncertainties regarding policies including tariffs are likely to have large impact on business, household sentiment, global financial, capital markets
• Import prices could rise, and push down domestic demand if disruptions in global logistics were to arise or moves to restructure supply chains were to take place and incur considerable costs

BOJ quarterly report: Important for BoJ to carefully examine factors such as developments in economic activity

• Important to judge whether the outlook will be realised without any preconception
• Extreme uncertain how trade and other policies in each jurisdiction will evolve
• Uncertain how overseas econimic activities and prices will react to them
• Japan’s financial system has maintained stability on the whole
• If disruptions in global logistics were to arise or moves to restructure supply chains were to take place and incur considerable costs, import prices could rise
• This could in turn push down domestic demand
• Households’ defensive attitudes toward spending could strengthen further, and this could push down the economy
• A prolonged period of high uncertainties regarding trade and otherpolicies in each jurisdiction could lead firms to focus more on cost cutting
• Moves to reflect price rises in wages could also weaken

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Background to this:

Still to come is Bank of Japan Governor Ueda’s press conference at 0630 GMT / 0230 US Eastern time.