Japan: BoJ keeps the accommodative stance unchanged – UOB

Senior Economist at UOB Group Alvin Liew comments on the latest BoJ monetary policy meeting.

Key Takeaways

“The Bank of Japan (BOJ), as widely expected, decided to keep its policy measures unchanged at its Jul Monetary Policy Meeting (MPM). The BOJ continued its stark divergence with its G7 peers who are on the cusp or already normalizing monetary policy, as the Japanese central bank kept persistently to its preference for easing, reiterating its pledge that it ‘will not hesitate to take additional easing measures if necessary, and also it expects short- and long-term policy interest rates to remain at their present or lower levels’.”

“In its latest outlook for economic activity and prices (The Bank’s View), it was also not surprising that the BOJ lifted inflation forecasts across FY 2022-24 and further trimmed near term GDP (FY2022). The BOJ now projects core CPI inflation (excluding fresh food) will rise to 2.3% in FY2022 and ease to 1.4% in FY2023 and to 1.3% in FY 2024. BOJ’s GDP growth outlook is materially downgraded for FY2022 to 2.4% (from +2.9% previously in Apr 2022 MPM), while upgrading the FY2023 growth to 2.0% (from 1.9% previously) as well as FY2024 growth to 1.3% (from 1.1% previously).”

“Even as Japan’s inflation is heading higher, it is still below 2% beyond the FY2022 spike and the driving factor is largely stemming from an uncertain supply shock while domestic demand remains weak and wage growth still lacklustre. And add the recent spike in COVID-19 inflections domestically, there is little incentive for the central bank to change course and we continue to expect the BOJ not considering policy normalisation (be it rate hikes or tweaking current monetary easing) anytime soon.”