Investors are preparing to take on the Bank of Japan again as new governor Kazuo Ueda gears up for his first policy meeting this week.
It is anticipated that the new Governor of the Bank of Japan, Kazuo Ueda, will not make any significant changes at his first meeting in charge. He is expected to wait for the markets to stabilize further, following the recent turbulence in the financial sector.
At the conclusion of their two-day meeting on Friday, Ueda and the other board members are expected to maintain the current interest rate and asset purchase settings.
“There is no rush for Ueda to make changes,” said Eiji Kitada, chief economist at Hamagin Research Institute. “Following the banking crisis, market players are still wondering what’s going to happen next. The BOJ wouldn’t want to risk putting more pressure on the situation.”
Sources indicate that policymakers are hesitant to act following the recent banking crisis overseas, which has created uncertainty about the future.
“The chances for a policy adjustment at the first meeting are low,” said Ryutaro Kono, chief Japan economist at BNP Paribas SA. “That would likely cause problems for both the market and politicians.”
Responding to questions in parliament on Tuesday, Ueda said continuing monetary easing with yield curve control was appropriate for now. Tightening policy at this point could result in a grave economic situation down the line, he added. “Inflation is expected to cool to below 2% in the second half of this fiscal year” ending in March 2024, he added.
In order for the BOJ to implement significant changes, they must be confident that inflation is a persistent issue. Ueda previously stated that it is appropriate for monetary policy to address the possibility of inflation falling below the 2% target at present.
Data on Friday showed Japan’s consumer prices excluding fresh food and energy gained the most since 1981. Speaking for the first time in public since the data, Ueda said that the inflation reading was expected to soon slow down.
The BoJ has emphasized the importance of sustained growth in wages to ensure a continued increase in prices. Although recent annual pay talks have resulted in the most positive outcome in thirty years, this alone may not be sufficient to significantly impact the central bank's objectives.
JPMorgan expects the BoJ to adjust or abandon curve control at the June meeting, with the risk of an earlier move.
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