Macroeconomic focus

Bank of Japan: back to conventional

In March, the Bank of Japan (BoJ) made a bold move by dropping its negative interest rate policy, Yield Curve Control and complex commitments on monetary base and inflation overshooting in one go. This shift marks a return to a simpler and more conventional monetary policy framework, with the short-term interest rate (TONA) becoming the primary policy tool, accompanied by a general forward guidance of maintaining accommodative financial conditions.

Future interest rate hikes will primarily be driven by inflation, as Governor Ueda clarified during the press conference, emphasising that hikes are conditional on further increases in underlying inflation towards the 2% target. However, with inflation expected to moderate, the BoJ does not have the right conditions to raise rates in 2024 or 2025. We expect the Bank to maintain TONA at 0-1%, conducting quantitative tapering or sporadic tightening if necessary.

You can now read the full whitepaper at the link below