Bank Of Japan Maintains Ultra-Easy Monetary Policy Amid High Uncertainties

Japan's central bank maintained its ultra-loose monetary policy unchanged at its last meeting this year due to significant uncertainties impacting the country's economy, postponing any potential adjustments until the new year.

The Bank of Japan (BOJ) unanimously decided to retain interest rates at -0.1 per cent and uphold its yield curve control policy, maintaining the upper limit for 10-year Japanese government bond yields at 1 per cent.

In a policy statement, the BOJ highlighted the immense uncertainties globally and domestically, committing to persist with monetary easing while vigilantly responding to economic activity, price changes and financial conditions.

Following the decision, the Japanese yen weakened, hovering around 143.5 against the US dollar, while the Nikkei 225 stock index rose by 1 per cent. Meanwhile, yields on 10-year Japanese government bonds remained mostly unchanged.

Given the challenges posed by a slowing economy and subdued inflation, most economists anticipate any adjustments to the ultra-loose monetary policy by Governor Kazuo Ueda to occur next year, likely after the annual spring wage negotiations validate substantial wage increases.

Ueda is expected to provide further guidance on the BOJ's future actions during a press meeting later, building on comments made earlier in December that had initially raised expectations of a policy shift and led to a yen rally.

The BOJ has approached any unwinding of its prolonged ultra-loose monetary policy cautiously, concerned that premature moves could disrupt recent modest improvements.

Despite sustained core inflation exceeding the 2 per cent target for an extended period, the BOJ remains patient in maintaining its accommodative monetary stance. The bank places emphasis on domestic demand-driven inflation, viewing wage hikes as pivotal in encouraging consumer spending and achieving a sustained inflation spiral.

Japan's main labor union, Rengo, has indicated intentions to demand at least a 5 per cent wage increase during next year's spring negotiations, following a significant raise secured in this year's talks.

The BOJ's intricate monetary policy, shaped by extensive quantitative easing measures over three decades, differs notably from other major central banks that have raised rates to counter persistent inflation. This divergence has contributed to pressures on the yen and government bonds in Japan.