The Bank of Japan stuck to its easy-money policy while raising its inflation forecast on Thursday, despite other countries raising interest rates to counter rising prices.
Policymakers have refused to reverse measures introduced a decade ago as the BoJ struggles to sustain price increases in the world’s third largest economy.
But the decision is increasingly leaving it alone as its peers hike interest rates and send the yen falling to a 24-year low against the dollar.
To highlight the differing approaches, the European Central Bank is expected to announce its first rate hike since 2011 later on Thursday.
Prices in Japan are rising, and the BoJ raised its inflation forecast for fiscal 2022-23 to 2.3 percent from 1.9 percent in April, “on the back of increases in the prices of commodities such as energy, food and durable goods.”
“Thereafter, the rate of increase is expected to slow down” as energy prices stabilize, it said.
The BoJ added that it will keep interest rates at minus 0.1 percent and continue to buy unlimited government bonds to maintain a low cap on long-term yields.
This monetary easing policy aims to achieve sustainable inflation of 2 percent, a target that the bank sees as key to stable growth.
The central bank views the current price increases, caused by pandemic-related supply shortages and higher commodity prices related to the war in Ukraine, as temporary.
So while its counterparts elsewhere tame inflation, it sees no need to change course.
“There is no sign of a meaningful acceleration in the rate of wage growth, which is necessary for sustained inflation,” said Ryutaro Kono, chief economist at BNP Paribas.
And some believe that rate hikes would not counter current inflationary pressures in Japan.
“Higher interest rates would do little to change the situation in the long term,” Stefan Angrick, senior economist at Moody’s Analytics, told AFP.
“Inflation in Japan is mainly being driven by higher imported food and energy prices, which are beyond the reach of the BoJ.”
Rate hikes won’t necessarily boost the yen either, he added, noting that “many other currencies have depreciated against the dollar even as their respective central banks have hiked rates.”
Following Friday’s announcement, the dollar rose as high as 138.55 yen before falling slightly, although that’s still comparable to 115 yen earlier in the year.
The BoJ cut its economic growth forecast for the current fiscal year to 2.4 percent from 2.9 percent in its previous forecast and warned that “extremely high uncertainties” from Covid-19 to the situation in Ukraine remain.
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