Bank of Japan To Keep Low Rate Amid 40-Year-High Inflation Rate

The Bank of Japan is widely expected to maintain ultra-low rates at a two-day policy meeting starting Monday, Dec. 19, 2022, despite inflation hitting a four-decade high as companies pass on increased costs to consumers, Mainichi Shimbun reported.

Photo Insert: Keeping to its dovish stance, the Japanese central bank is widely expected to continue setting short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bonds to around zero percent.

The meeting, the first of the three left in Governor Haruhiko Kuroda's term, comes after government sources told Kyodo News that the administration of Prime Minister Fumio Kishida is planning to revise a decade-old accord with the BOJ, with details likely to be worked out with whoever succeeds Kuroda when he steps down in April.

The joint statement issued in 2013 states that the central bank will aim to attain its 2 percent inflation target "at the earliest possible time." The envisaged revision would make the target more flexible, while retaining the goal itself.

Kuroda has made it clear that the BOJ's ultralow rate policy is necessary to support the still fragile economic recovery as rising commodity prices are adding downward pressure. More robust wage growth is a requisite for the 2 percent target to be attained in a sustainable fashion and thus a near-term rate hike is not an option.

Keeping to its dovish stance, the Japanese central bank is widely expected to continue setting short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bonds to around zero percent.

Under the so-called yield curve control program, it has been desperately defending the 0.25 percent upper limit for the benchmark yield by offering to buy unlimited amounts of 10-year bonds even when overseas yields have been trending higher.

The BOJ faces greater pressure from Japanese households that are already feeling the pain of rising prices, partly due to the central bank's commitment to its ultralow rates that has weakened the yen and boosted import costs.

The US Federal Reserve made a 0.5 percentage point rate hike last week, smaller than the four 0.75 point increases seen previously, but indicated more hikes are forthcoming as the world's largest economy may be headed toward a recession.

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