Bank of Japan Maintains Monetary Policy, Removes Forward Guidance
At its recent Monetary Policy Meeting (MPM), the Bank of Japan (BOJ) made a surprising move by keeping its current monetary policy guidelines unchanged while removing its forward guidance. This decision came as a shock to the markets, with UOB Group Senior Economist Alvin Liew noting the unexpected development.
No Changes to Monetary Policy Guideline as Expected
The BOJ’s decision to maintain its current monetary policy guidelines for money market operations was in line with market expectations. However, the absence of any forward guidance in the September MPM statement was a departure from the previous meeting in July. Despite this change, the BOJ’s positive economic outlook and expectations of gradually rising inflation remained largely unchanged from the previous meeting.
- BOJ expected to resume normalization in the fourth quarter of 2024
- Potential 25-bps hike to 0.50% as terminal rate
- Path to normalization subject to CPI forecast changes in subsequent meetings
Analysis of the BOJ’s Decision
The BOJ’s decision to maintain its monetary policy while removing forward guidance indicates a cautious approach to future monetary policy adjustments. By signaling a potential rate hike in the fourth quarter of 2024, the BOJ is setting the stage for gradual normalization of its policy. This move suggests confidence in the economic outlook, with an eye on inflation trends as a key factor in future policy decisions.
Investors and market participants should closely monitor CPI forecasts and economic indicators leading up to the next MPM to gauge the likelihood of a rate hike and its potential impact on the financial markets.