BOJ holds rates, leaves markets guessing on hike timing

The Japanese central bank decided to leave its ultra-loose monetary policy settings unchanged.

By Ahmed Azzam | @3zzamous | 23 January 2024

Market open
  • BoJ shows modest confidence in achieving inflation goal

  • Initial weakening of Yen post-decision, followed by reversal in losses

The Bank of Japan (BoJ) has maintained its policy status quo, leaving the short-term interest rate at -0.1% and 10-year bond yields around 0% in a unanimous vote during its January meeting. Despite the hold, the BoJ hinted at growing confidence in achieving its long-sought inflation target.

In its quarterly outlook report, the BoJ adjusted the Consumer Price Index (CPI) projections for Fiscal Year 2024, lowering them from the October estimate of 2.8% to the current 2.4%. This revision is attributed to the recent decline in oil prices.

The central bank provided no clear signals regarding the potential end of its negative rate policy, keeping investors in suspense about future policy shifts. This decision cements the BoJ's position as a global outlier, as counterparts like the Federal Reserve and European Central Bank contemplate potential rate cuts later in the year.

Market sentiment, reflected in the swaps market, indicates a 44% probability of a rate hike by the April meeting and a significant 98% likelihood by the July gathering. This speculation underscores the uncertainty surrounding the timing and extent of any potential policy adjustments.

Former BoJ official Momma weighs in on monetary caution

Former Bank of Japan Assistant Governor Kazuo Momma shared insights on Japan's negative interest rate policy, yield curve control, and the BoJ's commitment to overshooting. Speaking on Bloomberg TV, Momma emphasized the lingering uncertainty about anchoring a 2% inflation rate firmly in Japanese society. He suggested caution from the BoJ in raising interest rates, noting the potential for one or two hikes this year, but with lingering uncertainty.