Bank of Japan keeps easing despite global rate hikes - Financial Daily News Site

Bank of Japan keeps easing despite global rate hikes

The Bank of Japan today stuck to its monetary easing policy even as other central banks raise interest rates to tame inflation.

But it said it would “pay due attention” to forex markets as the yen struggles at a 24-year low.

The decision to hold rates at -0.1% – part of a decade-old plan to boost the world’s third-largest economy – bucks a tightening trend by central banks globally aimed at battling sky-high fuel and food prices linked to the Ukraine war.

The hikes have been led by the US Federal Reserve, which this week announced its most aggressive increase in nearly 30 years and signalled more were in the pipeline.

The European Central Bank also plans to start a series of rate increases next month, the first in more than a decade.

The Bank of England announced a fifth increase in a row yesterday and Switzerland surprised markets with its own rate hike, the first since 2007.

The widening chasm between Japanese and US monetary policy this week pushed the yen to its lowest level against the dollar since 1998.

This is a cause for increasing concern that even the central bank made reference to after its meeting today.

“It is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices,” the Bank of Japan said, in an unusual reference to forex movements.

After the announcement, one dollar bought 134.63 yen, up from 133.41 yen earlier in the day.

A weaker yen helps Japanese exporters as it inflates repatriated profits, noted Yoshikiyo Shimamine, executive chief economist of Dai-ichi Life Research Institute.

For the Bank of Japan, it may be that “these benefits overwhelm the negative aspects of a cheaper yen – high prices for imported goods, which causes people to suffer without sufficient pay rises,” he told AFP.

The bank’s ultra-loose monetary policy aims to achieve 2% inflation, a target that has been stubbornly out of reach during years of price stagnation.

In April, core consumer prices hit the target for the first time since 2015, but the Bank of Japan has cautioned that it sees recent rising prices as a temporary and volatile trend.

Inflation has been rising for months in the US and elsewhere as buoyant demand for homes, cars and other goods clashes with supply problems caused by Covid-19 lockdowns in China and other pandemic hold-ups.

The problem became dramatically worse after Russia invaded Ukraine in February and Western nations imposed steep sanctions on Moscow, sending food and fuel prices soaring, a particular problem in resource-poor Japan.



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