Japan remains the last country with a negative interest rate

The Bank of Japan remains confident that the country's inflation rate will fall below 2% next year. In this regard, the bank has kept interest rates extremely low compared to other countries, arguing for the decision with new government measures aimed at fighting inflation. Inflation in Japan increased by 3.4% in October, the highest in the past 40 years. 

The Bank of Japan, represented by bank governor Haruhiko Kuroda and his colleagues, decided not to change the interest rate, the limit of bond yields and asset purchases. The decision didn’t have a significant impact on the market. Almost 50 analysts surveyed by Bloomberg have a similar opinion to the Bank of Japan.

The decision was made in the hope that new government measures aimed at fighting inflation will to some extent cushion the Bank of Japan and support it in difficult times of soaring energy prices. It’s assumed that the jump in prices is due to the weakening of the yen.

Kyohei Morita, chief Japan economist at Nomura Securities, is still inclined to believe that the Bank of Japan won’t raise the interest rate and tighten monetary policy, since the growth rate of Japanese inflation is 2-3 times less than European and American.

The Bank of Japan also doesn’t exclude the possibility that inflation in March 2023 (the end of the fiscal year) will be 2.9%. This is what the bank reported in its economic forecasts. On the other hand, according to the forecast, price growth will fall to 1.6% during the year. Thus, it can be concluded that the rate of inflation growth is stable.

Toru Suehiro, chief economist of Daiwa Securities, said that at the moment the Bank of Japan is recording the state of the economy, gradually changing the inflation forecast to higher, while not rushing to raise rates. In his opinion, as long as Kuroda is the governor, the bank's policy course won’t change, which means the main goal of the government will be to maintain stable economic growth, and stimulate wage increases.

The next meeting of the Bank of Japan will be held in 2 months, at the end of December. There is a chance that the economic situation may change in favor of Japan by then, which in turn will lead to an easing of pressure on the yen.

During this year, the yen has fallen five times against the dollar, and since it’s the biggest fall among other major currencies, all the attention of traders is focused on the policies of the Bank of Japan and the U.S. Fed.

Kyohei Morita, commenting on the situation, said that the Bank of Japan isn’t much concerned about such a fall, because the bank can’t change the strong dollar, the situation can’t be fixed by the usual adjustment of yield curve control.