The Bank of Japan (BoJ) has kept its key interest rate at 0.5%, the highest in 16 years, after its last hike in January. The bank said it could increase the rate every six months, depending on the economic situation.
The BoJ’s statement underscored economic uncertainty, especially in the context of global trade policy, which seems to be the apple of BoJ bankers’ eyes. On the other hand, there is no shortage of dovish talk, as bankers predict that core inflation will reach the BoJ’s target in about 18 months. Japan’s economy is currently recovering moderately, responding to rising rice costs that are exerting broad-based price pressures.
However, the domestic situation is being assumed by the BoJ, with geopolitics being the main reason for holding off on further tightening. Trade tensions are casting a shadow over Japan’s export prospects, and it is not yet clear whether Japanese consumers will increase their purchases due to higher wages.
Japan’s exports rose 11.4% in February from a year earlier, but machinery orders – a leading indicator of the country’s capital spending – fell 3.5% in January. The BoJ will factor such data into a quarterly review of its growth and price forecasts at its next policy meeting on April 30-May 1, which will be crucial for the timing and pace of further rate hikes.
Kazuo Ueda, the BoJ’s top banker, has mixed comments on what’s next. The banker believes uncertainty surrounding Japan’s economy remains high and is primarily due to trends in global trade policy. The strong momentum for wage increases is spreading to smaller companies, making it essential to closely monitor their changes and potential impact on price levels.
he USDJPY pair is experiencing increased volatility today after the BoJ decision and Ueda’s statements. At the moment, the pair’s early gains have been halted and we are currently seeing declines on an intraday basis. Interestingly, this reversal is occurring at the upper limit of the pair’s medium-term downward channel. Source: xStation
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