The Bank of Japan (BOJ) made the decision to hold rates steady at its meeting this week, leaving room for further stimulus in the coming months. The move indicates that further rate adjustments and asset purchases are still on the table.
Inflation remains far below the Bank of Japan’s 2% goal. With continued slow growth, analysts predict another expansion mid-year. Governor Haruhiko Kuroda noted that the full impact of the negative rate does not have be realized before making another move.
Kuroda is under intense pressure, as corporate and household sentiment diminishes. Investors are concerned that central banks have reached their limits on monetary policy.
The BOJ’s statement indicates a downgrade in its economic outlook, which supports expectations of a move somewhere between April and July.
Economists expect the BOJ to cut negative rates even further to stoke the economy.
The Bank of Japan isn’t the only bank seeing financial markets move against them. The ECB (European Central Bank) implemented an aggressive monetary stimulus package, but the move still did not please many investors. The Federal Reserve in the U.S. kicked off its two-day monetary policy meeting on Tuesday.
The Bank of Japan is refining its new policy, exempting money reserve funds from the negative rate in a move to appease institutional investors who are not pleased with the policy.
Economic data since the BOJ’s meeting in late January shows very little recovery momentum. Its key consumer-price measure was unchanged in January, and sentiment among businesses and consumers has declined.
The yen moved ahead against the dollar at 113.06, 6% higher than at the start of the year. Gains in the currency jeopardize corporate profits growth, especially in exports. A stronger yen will also impact inflation due to reduced import costs.
The Bank of Japan stated that it would be examining “risks to economic activity and prices,” and noted that it would take further easing measures in terms of quality, quantity and interest rate if deemed necessary.