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The Bank of Japan (Boj) is reluctant to raise rates despite the escalation of inflation

Date: February 26, 2024 Time: 19:19:35

The Bank of Japan (BoJ) refers to negative benchmark interest rates and unanimously keeps its monetary policy unchanged. The body is listening to the signs of improvement in the national economy and the prospects of a slowdown in inflation to endorse this decision and at the end of its two-day monthly meeting on Friday, the Japanese central bank opted to maintain the rates again. short-term interest rates at -0.1% and continue with its large bond purchase program to place the long-term yield curve around 0%, with an acceptable fluctuation margin of 0.5%.

The BoJ said in its report that the Japanese economy has been expanding in recent quarters “despite being affected by factors such as past high energy prices” and said financial conditions “have been accommodating.” Although Japanese exports and industrial production have been affected by developments abroad, where the lender sees an economic “slowdown”, indicators “have remained more or less flat, helped by the easing effects of the supply problems.

The Japanese central bank noted an increase in investment by companies linked to good recent corporate profits and a slowdown in inflation coupled with “the disappearance of higher energy prices,” according to what it said in the text. Japan’s consumer price index (CPI) has averaged 3.5% in recent months, well above the BoJ’s 2% target, so some expected the bank to act in line with others. of big central banks that have been raising rates to control inflation.

The Japanese central bank has remained immovable in its policy in the face of what it considers temporary inflation that, it said, it expects to slow down from September. The president of the BoJ, Kazuo Ueda, justified this position this Friday in a press conference in which he explained that the deliberations are made based on forecasts of more than six months ahead and that it would not be appropriate to adopt a policy change “when the price trend is not clear.

Raising rates in the midst of the forecast slowdown in inflation, which they estimate will fall below their target in the coming months, could have undesired effects on the accommodation time required by the measures to analyze their effects, added . Ueda said he was aware that the current level of prices “is a burden for the Japanese population”, but he reiterated that the drift of inflation in Japan has been conditioned by the global trend and that “it is difficult for the BoJ to do anything directly about it with our policy.”

The BoJ said, however, the uncertainty linked to the geopolitical situation and that it will continue to monitor global economic developments. “Given extremely high uncertainty surrounding economies and financial markets at home and abroad, the BoJ will patiently continue its monetary easing while responding nimbly to developments in economic activity and prices,” the report reads.

The BoJ published the result of its meeting during the half-session break on the Tokyo Stock Exchange, which then fell by 0.53%. The foreign exchange market reacted quickly to the publication of the report, after the yen accelerated its depreciation. The Japanese currency was close to 141 units against the dollar after learning of the BoJ’s decision, which contrasts with the manifest willingness of the US central bank to continue raising rates from July despite the June break.

The euro, which hit levels not seen in 15 years against the Japanese currency this week, is heading for 154 yen, a day after the European Central Bank raised interest rates a quarter of a point to 4%. . When asked about the evolution of the yen, which has devalued considerably in the last year, Ueda said that he believes that “it is important that the market moves” and that the impact of the fall of the yen is “significantly different depending on the moment “, given its positive effects in certain sectors and negative ones in others.

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Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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