Despite the hawkish stance taken by most of the central banks around the world, The Bank of Japan (BOJ) has the luxury to maintain low interest rates with its dovish policy guidance on Thursday.
The BOJ’s decision will come just after the Fed concludes its September 20-21 meeting.
The monetary policy gap between the Bank of Japan (BOJ) and the Federal Reserve has caused the Japanese Yen to 24-year lows. The weakening of Japanese Yen has driven up import costs and inflation rate hovering above 2% for 5 straight months. To recap, BOJ’s target inflation is 2%.
At a two-day policy meeting ending on Thursday, the BOJ is set to maintain its short-term rate target at -0.1% and that for 10-year government bond yields around 0%.
Meanwhile, market participants are focusing on whether BOJ Governor Haruhiko Kuroda will offer stronger warnings on the Japanese Yen’s depreciation or tweak his view the recent cost-push inflation will be short-lived.
According to economists, Japan’s consumer inflation is perking up at a faster than expected pace, partly due to the weak yen. Hence BOJ’s statement that inflation pressure will remain temporary, is hard to prove.
On another hand, market players expect the Fed to raise rates by at least 75 basis points.
It should be noted that Japan’s fragile recovery has forced the BOJ to remain an outlier among a global wave of central banks tightening monetary policy to combat surging inflation.
Kuroda has pledged to keep monetary policy ultra-loose to support the economy. BOJ is expected to end as scheduled a pandemic-relief funding scheme this month and discuss adjustments to a policy guidance that flags the COVID-19 pandemic as the top economic risk at the meeting.
