A view of signage outside the Bank of Japan headquarters amid the outbreak of the coronavirus disease (COVID-19) in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon
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- The Management Board is leaving the interest rate targets unchanged
- BOJ warns of ‘very high’ uncertainty over impact on Ukraine
- Gov Kuroda says there is no need to tighten policy
TOKYO, March 18 (Reuters) – The Bank of Japan stuck to its massive stimulus on Friday, warning of increasing risks to a fragile economic recovery from the Ukraine crisis, raising expectations that it could help as the global shift to a tighter monetary policy will remain an outlier.
Gov. Haruhiko Kuroda said there was no need for the BOJ to withdraw stimulus as an expected surge in inflation will be mainly driven by rising energy and commodity prices.
“There is a possibility that inflation in Japan will hover around 2% from April,” he told a news conference. “But most of this is due to rising commodity prices, so there is no reason to tighten monetary policy. This would be inappropriate.”
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The bank’s dovish tone stands in stark contrast to the US Federal Reserve and Bank of England, which raised interest rates this week to prevent fast-rising inflation from becoming entrenched.
As widely expected, the BOJ kept its short-term interest rate target at -0.1% and the 10-year bond yield at around 0% during the two-day monetary policy meeting that ended on Friday.
“Japan’s economy is recovering as a trend,” the bank said in a statement. The view was less optimistic than at its previous meeting in January, when it said the economy was showing “clearer signs of recovery”.
The central bank also warned of new risks from the Ukraine crisis, which would destabilize the financial markets and drive up raw material costs sharply.
“There is very great uncertainty about the impact developments in Ukraine could have on Japan’s economy and prices via markets, commodity prices and foreign economies,” it added in the statement.
The central bank downgraded its view on consumption and said a pickup had been “paused” because of a spike in infections with the Omicron variant of the coronavirus.
Growth in the world’s third-biggest economy is likely to have stalled in the current quarter as supply disruptions and COVID-19 restrictions hampered production and consumption. Continue reading
Earlier in the day, data showed that Japan’s core consumer prices rose 0.6% year on year in February, the fastest pace in two years, a sign of mounting inflationary pressures from higher energy costs.
But that’s still much less than 5.9% in the eurozone and 7.9% in the United States, where inflation is firming while wage growth is accelerating.
This is not the case in Japan, where the rise in inflation is mainly being driven by supply-side forces such as higher commodity costs.
Some analysts question whether households can absorb further price increases unless wages rise sharply.
In a sign of household pain from rising fuel costs, energy and electricity bills soared by about a fifth year-on-year in February, the fastest pace since 1981.
“With inflation and wage growth lagging behind other countries, the BOJ has no choice but to patiently maintain stimulus at least until Kuroda serves out his term in April 2023,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.
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Reporting by Leika Kihara; Additional reporting by Tetsushi Kajimoto, Daniel Leussink and Kantaro Komiya; Edited by Kim Coghill and Clarence Fernandez
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