The Bank of Japan keeps interest rates unchanged at -0.1% in the first meeting of 2024

The Bank of Japan kept interest rates unchanged at -0.1%, as expected at the first meeting of 2024, with the central bank maintaining its accommodative policy and lowering its expectations for core inflation for the next fiscal year.

The Bank of Japan decided to adhere to its yield curve control policy, which maintains the upper limit for the 10-year Japanese government bond yield at 1% as a reference number, according to the policy statement issued after the Bank of Japan’s two-day meeting.

Yields on 10-year Japanese government bonds fell, while the Japanese yen rose 0.1% to 148 against the dollar, and the Nikkei stock index briefly reached a 33-year high before paring its gains.

Signatures from economists and consensus from the market

All economists polled by Reuters expected the Bank of Japan to maintain its negative interest rate policy this month, which would make it the bank in the world with negative interest rates. Governor Kazuo Ueda is scheduled to explain the decision at a press conference later.

The market consensus is that the Bank of Japan will scrap the negative interest rate system at its April meeting at the earliest, once spring wage negotiations confirm the direction of significant salary increases.

The Bank of Japan believes that this trend will encourage consumers to spend and lead to more sustainable and stable inflation, driven by domestic demand.

Forecasts for the economy

In its quarterly forecasts for the Japanese economy, members of the Bank of Japan's board of directors lowered their average forecast for core CPI growth to 2.4% for fiscal 2024 starting in April, compared to 2.8% in their estimate in October.

The central bank also marginally increased its core CPI inflation estimate for fiscal year 2025 to 1.8% from 1.7% previously forecast.

The core consumer price index in Japan had jumped 3.1% during the past year 2023, recording its highest level since 1982.

According to data from the Ministry of Internal Affairs and Communications, the consumer price index, which excludes fresh food items, rose 2.3% on an annual basis in December, compared to 2.5% in November, and these levels exceed the Bank of Japan’s target of 2% for the 21st month in a row.