The Bank of Japan (BOJ) released minutes from its March meeting today, shedding light on the cautious approach the central bank is adopting regarding future interest rate hikes, particularly in the context of persistently low inflation.
During the meeting held on March 18-19, the BOJ’s policy committee deliberated extensively on the implications of its decision to increase the short-term interest rate, marking the first hike in 17 years. While some members expressed confidence in achieving the BOJ’s 2% inflation target, others highlighted the potential risks of rising inflation and emphasized the importance of maintaining a flexible approach in monetary policy.
The committee unanimously resolved to raise the short-term interest rate from -0.1% to a range of 0 to 0.1%, effectively ending the long-standing negative interest rate policy. Additionally, the BOJ announced the termination of the yield curve control (YCC) policy, along with the cessation of purchases of ETFs and J-REITS (Japanese real estate investment trust funds). Moreover, the central bank outlined plans to gradually reduce purchases of private debt instruments, with intentions to cease such acquisitions within a year. However, the BOJ reiterated its commitment to continue purchasing Japanese government bonds to mitigate surges in bond yields.
Despite these significant policy shifts, the BOJ signaled a deliberate approach towards future interest rate hikes, emphasizing the importance of current economic conditions. With core inflation remaining below the 2% target, the central bank maintains a stance on monetary policy that diverges from that of major central banks worldwide. Consequently, this cautious stance has contributed to a weakening of the yen against both the dollar and euro in recent trading.