BANGKOK– The Bank of Japan maintained its long-standing accommodative credit policy on Tuesday, saying it would monitor price and wage developments before raising its negative benchmark interest rate.
The BoJ’s political decision was widely expected. But investors and analysts say the central bank is tiptoeing toward change because of price hikes that have left inflation above its 2 percent target.
The U.S. dollar appreciated against the Japanese yen and stock prices jumped after Tuesday’s decision.
The benchmark rate of -0.1% aims to encourage banks to lend more and businesses and consumers to borrow more to stimulate the economy, the third largest in the world. The central bank has also bought trillions of dollars’ worth of government bonds and other assets as part of its strategy to inject more cash to spur growth as Japan’s population shrinks and ages.
Inflation has been rising in Japan, but at a much slower pace than in the United States and other major economies, most recently at around 3%. At the same time, the US dollar appreciated against the Japanese yen as rates were raised to counter inflation which peaked at 9.1% in the US. This undermined the purchasing power of the yen, increasing the costs of energy and other raw materials.
BOJ Governor Kazuo Ueda remained cautious about raising rates, saying wage increases were lagging behind price rises and the target inflation level may not be maintained .
The central bank’s policy statement said real estate investment remains weak and government spending is stable.
“With the extremely high uncertainties surrounding economies and financial markets at home and abroad, the bank will patiently continue to ease monetary policy,” the BOJ said in a statement.
The central bank is reviewing its strategy, but “will not rush to abandon” its current “quantitative easing” stance, Oxford Economics said in a research note. “The exit will be delicate, requiring many years and comprehensive policy measures in collaboration with the government to ensure a smooth and stable process,” he said.