Japan: BoJ keeps rates on hold, revises up inflation and GDP – UOB

Senior Economist at UOB Group Alvin Liew comments on the latest BoJ monetary policy event.

Key Takeaways

“The Bank of Japan (BOJ), as widely expected, decided to keep its policy measures unchanged at its Monetary Policy Meeting (MPM) on 18 Jan 2022.”

“In its latest outlook for economic activity and prices (The Bank’s View), the most notable change was the upgrade of its FY2022-2023 inflation forecasts to 1.1% from 0.9% and 1.0% previously. The BOJ noted that risks to price outlook were “evenly balanced”, seen as a signal acknowledging the recent supply-constraint effects and commodity-driven price pressures.”

“The other change was the downgrade of its FY2021 growth forecast to 2.8% (from 3.4%) while upgrading FY2022 growth to 3.8% (from 2.9%) and lowering FY2023 growth to 1.1% (from 1.3%). The BOJ also kept its cautious recovery outlook but highlighted the risks to economic activity are skewed to the downside for now due to COVID-19 impact but will be expected to be balanced thereafter.”

“While the inflation outlook has been upgraded, it remains a distance away from the 2% target (at least till FY2023) and as such it does not change our view that the BOJ will not be tightening anytime soon and will maintain its massive stimulus for the next few years. There remains an entrenched belief that the BOJ has reached the end of the line on normalisation and will remain in a holding pattern on policy until at least April 2023 when Governor Kuroda is scheduled to leave the BOJ.”