(Reuters) – The Bank of Japan maintained its massive stimulus on Friday and warned of heightening risks to a fragile economic recovery from the Ukraine crisis, reinforcing expectations it will remain an outlier in the global shift towards tighter monetary policy.
The BOJ’s dovish tone is in stark contrast with the U.S. Federal Reserve and the Bank of England, which raised interest rates this week to stop fast-rising inflation becoming entrenched.
As widely expected, the BOJ maintained its short-term rate target at -0.1% and that for the 10-year bond yield around 0% at the two-day policy meeting that ended on Friday.
Following are excerpts from BOJ Governor Haruhiko Kuroda’s comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
UKRAINE CRISIS’ IMPACT
“The biggest impact on Japan’s economy from the Ukraine crisis is through rising raw material costs. Japan’s inflation is likely to accelerate clearly for the time being. But it also weigh on the economy from a longer-term perspective by pushing down corporate profits and households’ real income.”
“Developments regarding the Ukraine crisis are highly uncertain. We will closely watch whether they inflect negative impact on Japan’s economy that is still in the midst of recovering from the pandemic’s hit.”
INFLATION
“It will depend on future crude oil price moves and the government’s steps to cushion the blow. But we could see inflation move at around 2% for some time from April. Rising costs will push up inflation. But it weighs on households and corporate profits, and could have a negative impact on Japan’s economy. We will maintain our powerful monetary easing patiently to achieve sustainable, stable inflation.”
WEAK YEN
“A weak yen affects Japan’s economy in different ways as the country’s economic and trade structure changes. But overall, there’s no change to how a weak yen is basically positive for Japan’s economy. It’s true the impact is felt unevenly among sectors, corporate size and economic entities…”
“The recent rise in import costs is driven more by surging raw material costs than by a weak yen.”
STAGFLATION
“I don’t think Europe, the United States and Japan will face stagflation”
INFLATION AND MONETARY POLICY
“There’s a chance Japan will see inflation move around 2% from April onward. But most of that is due to rising commodity prices, so there’s no reason to tighten monetary policy. Doing so would be inappropriate. We need to tweak monetary policy if inflation expectations or wages see second-round effects. But Japan isn’t in such a situation.”
(Reporting by Leika Kihara; Editing by Rashmi Aich)
