March 10, 2023 (MLN): The Bank of Japan (BOJ) has decided to maintain its current interest rate targets at the final meeting of Governor Haruhiko Kuroda, who has been in the role for 10 years.
The decision was made amid expectations that policy will shift under Kuroda's successor, Kazuo Ueda. The bank has kept its cap on the 10-year Japanese government bond yield at 0.5% and short-term interest rates at minus 0.1%.
Despite pressure to raise rates from the market, Kuroda has maintained ultralow interest rates and purchased various financial assets, including government bonds, stocks, and corporate bonds.
In the final year of his term, Kuroda faced calls to increase rates after the yen fell against the dollar and the Federal Reserve raised interest rates quickly to combat inflation.
However, Kuroda has argued that Japan still requires monetary stimulus because inflation is expected to fall below the BOJ's 2% target, despite running at over 4% recently.
Ueda, who was nominated by Prime Minister Fumio Kishida's government, has said he will continue Kuroda's easing program, but analysts anticipate that he may modify the policy of capping government bond yields, possibly by lifting the cap, removing it altogether, or targeting different types of bonds.
Ueda, a former economics professor at the University of Tokyo who served on the BOJ's policy board from 1998 to 2005, received final approval from Parliament earlier this week and will take over after Kuroda's term expires on April 8.
The BOJ has stated that it still needs time to assess the effects of its decision in December to raise the cap on the 10-year Japanese government bond yield from 0.25% to 0.5%.
