The Bank Of Japan Anticipates Higher Inflation In Fiscal 2024

(CTN News) – Following its monetary policy meeting, the Bank of Japan kept its benchmark interest rate at 0%-0.1% on Friday.

Reuters polled economists who forecast the same result.

Despite the move being anticipated, Tokyo’s April inflation came in lower than expected, with core inflation at 1.6% compared to Reuters’ expectations of 2.2%.

Additionally, the Bank Of Japan stated that it would continue to purchase bonds in accordance with its decision from March. It has previously been reported that the bank purchases approximately six trillion yen worth of bonds per month ($83.5 billion).

During the monetary policy statement, theBank Of Japan made no mention of the yen, which has steadily depreciated since the Bank of Japan ended its negative interest rate policy last month and abolished the yield curve control policy.

In response to the decision, the currency broke through the 156 mark against the U.S. dollar on Friday, most recently trading at 156.7.

According to Reuters, Bank Of Japan Governor Kazuo Ueda said on Friday that while the bank’s monetary policy does not directly target currency rates, exchange rate volatility could have a significant impact on Japan’s economy and prices.

In remarks translated by Reuters, Ueda said “if yen moves have an effect on the economy and prices that cannot be ignored, it could be a reason to adjust policy.”

For the time being, the weak yen has not had a significant impact on underlying inflation, but prices are overshooting in general, according to Reuters. Ueda also indicated that Japan might experience another round of cost-push inflation, according to the translation.

The term cost-push inflation refers to inflation that occurs as a result of increases in production costs, as opposed to demand-pull inflation, which occurs as a result of the demand exceeding the supply of a product.

We will not use one single indicator to gauge underlying inflation. According to the translation, Ueda said, “We will examine various economic indicators and factors that contribute to price movements, such as the output gap and inflation expectations.”

The inflation rate is expected to rise slightly

The central bank also published its second-quarter outlook for Japan’s economy, which raised its expectations for inflation in fiscal year 2024.

In its January forecast, the Bank Of Japan anticipated inflation between 2.2% and 2.5% for fiscal 2024.

In fiscal 2025 and 2026, inflation is expected to decelerate to “around 2%”.

Also, the BOJ reduced its forecast for the growth of the gross domestic product in fiscal 2024 from 1% to 1.2% to a range of 0.7% to 1%.

It is important to maintain an accommodating policy

According to the Bank of Japan, it will continue to conduct its monetary policy based on future developments in economic and price conditions. However, it stated that accommodative financial conditions will be maintained in the short term.

As a result of these economic and financial developments at home and abroad, the BOJ acknowledges that there remain significant uncertainties. However, if the central bank’s forecasts are realized and underlying inflation increases, it will “adjust the degree of monetary accommodation.”

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