TOKYO- The Bank of Japan maintained ultra-easy monetary settings on Tuesday in a widely expected move, as policymakers allow more time to determine whether wage increases will broaden enough to keep inflation sustainably at its 2 percent target.
However, underlining its growing conviction that conditions for phasing out its massive stimulus was falling into place, the central bank said the likelihood of the economy achieving durable 2 percent inflation continued to “gradually rise”.
Traders are focusing on any clues by governor Kazuo Ueda on how soon the BOJ will pull short-term rates out of negative territory, which is seen as the next move Ueda will take in dismantling his predecessor’s radical stimulus program.
Many market players expect the BOJ to end negative rates sometime this year with a recent Reuters poll showing April as the most likely timing for this to occur.
“The BOJ decided to stand pat probably because it wanted more evidence a virtuous cycle of wage growth and prices will take hold,” said Izuru Kato, chief economist at Totan Research, adding that he expects the bank to end negative rates in April.
At the two-day meeting that concluded on Tuesday, the BOJ left unchanged its short-term rate target at -0.1 percent and that for the 10-year bond yield around 0 percent . The central bank has maintained negative interest rates since 2016.
The yen fell broadly after the announcement, last trading at 148.39 per dollar.
In a quarterly report on the outlook, the BOJ cut its core consumer inflation forecast for the fiscal year beginning in April to 2.4 percent from 2.8 percent projected in October. It slightly revised up its forecast for fiscal 2025 to 1.8 percent from 1.7 percent .
The board left unchanged its forecast that an index gauging trend inflation will hit 1.9 percent in 2024 and 2025, underscoring policymakers’ view the economy is on track for sustainably meeting 2 percent inflation.
“Consumer inflation is likely to increase gradually toward the BOJ’s target as the output gap turns positive, and as medium- to long-term inflation expectations and wage growth heighten,” the BOJ said in the outlook report.
“The likelihood of realizing this outlook has continued to gradually rise, although there remain high uncertainties over future developments,” the report said in a newly added phrase on prospects for hitting its price target.
The BOJ’s meeting precedes that of the European Central Bank on Thursday and the US Federal Reserve next week, both of which aggressively tightened monetary policy last year and are now contemplating cutting interest rates ahead.