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Understanding the Bank of Japan’s Updated Policy and Interest Rates

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Evgeny Gromov

The Bank of Japan (BoJ) recently announced its decision to keep the short-term interest rate target unchanged at -0.1%. However, it also implemented changes to its yield curve control policy, aiming to enhance flexibility, as anticipated.

As per the BoJ’s latest release, the target level of the 10-year Japanese Government Bond (JGB) yield will maintain at 0%, with an upper bound of 1% being considered as a reference point.

The BoJ’s policymakers have expressed confidence in Japan’s economy, stating that it is likely to continue recovering at a moderate pace due to pent-up demand. However, they have also highlighted the potential downward pressure arising from the slowdown in the global recovery. The board reassured that it remains prepared to implement additional easing measures if necessary.

In its quarterly outlook report, the BoJ revised its inflation forecasts for fiscal years 2023 and 2024, projecting rates of 2.8% instead of the previously predicted 1.3% and 1.2%, respectively. These figures exceed the target inflation rate of 2%. For fiscal year 2025, the Consumer Price Index (CPI) is estimated to ease to 1.7% due to the diminishing impact of higher oil prices and past import price increases.

Comparing these new projections with the previous estimates, the inflation forecast for 2024 was revised upward from 1.9% to 2.8%, while the projected rate for 2025 increased from 1.6% to 1.7%. It is important to note that Japan’s fiscal year runs from April to March.

Investors interested in Japan’s economic developments may consider Exchange-Traded Funds (ETFs) such as (JEQ), (EWJ), (DXJ), and (FXY). Additionally, the currency pair (USD:JPY) is also worth monitoring.

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