Bank of Japan confirms negative rates and yield control policy

2024 starts in the name of stability Japanwhere the central bank maintained its ultra-expansionary monetary policyin an attempt to maintain a stable growth in inflation around the 2% target. A widely awaited decision from the Bank of Japan, which confirms itself to be going against the trend of other central banks, which have now reached the end of the process of raising interest rates.

The decisions of the Board

Bankers have decided unanimously to maintain a policy of quantitative and qualitative easing (Quantitative and Qualitative Monetary Easing or QQE), with the confirmation of a negative interest rate equal to -0.1% for short-term operations and zero for long-term operations.

Furthermore, the BoI unanimously decided to maintain a cap on the reference yield of government bonds (10-year JGB) equal to 1%in an attempt to control the yield curve (Yield Curve Against or YCC policy), which involves continuing to purchase securities across all maturities whenever the yield exceeds this limit.

Finally also confirmed a quantitative easing plan (asset purchases) from 12 billion per month, through the purchase of ETFs and real estate investment trust units (J-REITs).

The reasons for the confirmation

Within a context characterized by incertainties extremely high for economies and financial markets, at home and abroad, the Bank will continue “patiently” with monetary easingor while responding promptly to developments in economic activity and prices and financial conditions. Thereby, aims to achieve stability of the 2% price growth target in a sustainable and stable manner, accompanied by salary increases.

To achieve these objectives the BoJ confirms current tools of monetary policy “for as long as necessary” to maintain a stable price growth target and will continue to maintain the “stability of business financing and financial markets and will not hesitate to take further easing measures if necessary”.

Inflation expected to slow down

The forecasts of the Board of the Japanese Central Bank now highlight an increase in the economy’s growth estimate and a cut in the inflation estimate for the 2024 fiscal year which begins on April 1st. In fact, a median estimate of is now indicated GDP growth at +1.2% compared to the +1% estimated last October, while the inflation forecast (excluding food prices) was reduced to 2.4% from 2.8% estimated in October, due to the effects of the slowdown in oil prices. For the fiscal year 2025, however, a median GDP growth of 1% is confirmed, while inflation has been slightly revised upwards to 1.8% from the 1.7% previously forecast.