The Bank of Japan (BOJ) has called for a long-term review of its policies and scrapped guidance on future interest levels. At the end of a two-day gathering on Friday, the central bank maintained its rock-bottom interest rate and asset purchase settings as expected by nearly 90% of surveyed economists. The BOJ adjusted the wording in its forward guidance, abandoning references to Covid-19 and expectations that interest rates will remain at their current or lower levels.
Following these announcements, the yen dropped as much as 0.5%, while government bond futures reversed losses to trade higher. Analysts had predicted June would be when Governor Kazuo Ueda would call for a policy review; however, maintaining all main levers unchanged meant he did not opt for an immediate regime change like his predecessor Haruhiko Kuroda.
In addition to announcing a broad review of monetary policy, BOJ's decision lays groundwork for new Governor Kazuo Ueda to gradually phase out Kuroda's massive stimulus program. In a news conference conducted in Japanese, Ueda highlighted extreme uncertainty surrounding overseas economies due to ongoing developments in Ukraine war and commodity prices.
He also noted that trend inflation is slowly increasing but achieving their inflation target will take some time. This move signifies BOJ's cautious approach towards potential economic risks while setting up possible changes under Ueda's leadership.
Economist Akira Takei commented on these developments: "With this long-term review announcement, it seems that Governor Ueda is preparing ground for future shifts in policies without causing sudden market disruptions."