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BOJ moves to ward off downturn by maintaining easy money policy

THE NIKKEI via scoutAsia

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October 29, 2022 4 min read
BOJ moves to ward off downturn by maintaining easy money policy

TOKYO -- The Bank of Japan decided to maintain its ultraloose monetary policy on Friday as Gov. Haruhiko Kuroda highlighted downside risks to the economy and indicated his willingness to accept a weaker yen.

The BOJ released inflation projections, with the mean projection rising to 2.9% from 2.3% for fiscal 2022, and to 1.6% from 1.4% for fiscal 2023, in a sign that price increases are becoming more widespread than policy board members had anticipated. Fiscal years end in March.

But their mean projection for economic growth was sharply lowered, to 2% from 2.4% for fiscal 2022, and to 1.9% from 2% for fiscal 2023. At a news conference, Kuroda focused on the downgrade, not the seeming progress toward the BOJ's 2% inflation goal.

"It is not clear if the aggressive monetary tightening [by overseas central banks] does not become overkill and cause a serious recession," he said, making a case for letting easy money flow while other central bankers tighten their grips. "We have to be alert for that risk."

The BOJ released the results of its latest board meeting around noon, and market reaction was initially muted, with the yen staying around 146.50 against the dollar as the central bank was widely expected to stay the course.

But the yen's slide picked up speed during Kuroda's news conference, sending the Japanese currency toward 147.50 to the dollar in late Tokyo trade.

"There is a sharp contrast between the U.S. and European central banks, which are focused on fighting inflation, and the Japanese central bank, which is focused on supporting the economy," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. "Kuroda gave no hint of reversing monetary easing anytime soon."

Concerns are growing about an economic downturn, with S&P Global's October PMI data showing the global economy at increased risk of recession amid high inflation and tightening of monetary policy. Such worries have grown even stronger after weak earnings results from U.S. tech giants for the July-September quarter were released this week.

In a two-day policy meeting that ended Friday, the BOJ decided to keep its main monetary levers unchanged and maintain its yield-curve control policy, guiding 10-year yields to zero and short-term rates to minus 0.1%. The central bank says it will continue to purchase Japanese government bonds without a limit, and will continue unlimited fixed-rate operations at 0.25% every trading day.

Following the last monetary policy meeting on Sept. 21 and 22, Japan launched a round of dollar-selling interventions to stem the yen's slide against the dollar.

On Oct. 21, the Japanese currency fell to a 32-year low of 151 against the dollar, amid expectations for a further widening of gaps in interest rates between the U.S. and Japan.

The U.S. Federal Reserve has raised its policy rate by 300 basis points (3%) so far this year and is expected to raise it by another 75 basis points in a policy meeting on Nov. 1 and 2. As risks of recession grow, more market players are beginning to think that the Fed's tightening campaign is about to peak out.

On Thursday, the European Central Bank decided to raise policy rates by 75 basis points for a second straight meeting.

Meanwhile, the BOJ kept its easing bias in place. The forward guidance in the policy statement reiterated that it "will not hesitate to take additional easing measures if necessary" and that it "expects short- and long-term policy interest rates to remain at their present or lower levels."

Gov. Kuroda maintains that the ultraeasy policy is necessary to keep momentum toward sustained 2% inflation.
Japan's core consumer inflation stood at 3% in September, exceeding 2% for a sixth straight month. When volatile food and energy prices are stripped out, however, inflation stood at 1.8%.

During the news conference, Kuroda reiterated that the yen's recent dive is "too fast, one-sided and harmful to the economy." But he also said a gradual decline would be positive for the economy.

"Japan has a history of having suffered from extreme yen strength," Kuroda added, suggesting that excessive weakness is easier to bear than a too-muscular currency.

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The English translations provided through this service are the result of automatic and mechanical translation of contents written in Japanese and created by Nikkei or licensed by a third party, by an automatic translation system provided by a third party after certain processing of the contents by Nikkei. Nikkei disclaims all warranties, express or implied, related to the English translations, including any warranty of accuracy, reliability, validity and fitness for a particular purpose. Users shall use this service with the full understanding that it employs an automatic translation system that automatically and mechanically recognizes and analyzes information and outputs the results.