Bank of Japan to keep rates low despite 3% inflation

The Bank of Japan (BOJ) is very likely to maintain strong stimulus, even despite inflation of 3% expected over the next few months. This move will help support much-needed domestic demand and offset the effects of a global slowdown, said Goushi Kataoka, a former board member of the BOJ.

However, with inflationary pressure mounting, the BOJ is less likely to create stimulus to resist global headwinds, said Kataoka, who was a strong proponent of aggressive monetary easing during his tenure at the central bank.

In his opinion, the concept of additional easing will be actively discussed only in the event of a sharp deterioration in economic conditions. The politician also believes that fiscal policy will be crucial in the fight against the next economic downturn.

Kataoka added that he expects to see extremely loose monetary policy from incumbent Governor Haruhiko Kuroda before his term expires in April 2023. Taking into account Japan’s weak consumption and the upcoming risk of a global economic recession, the politician considers such approaches appropriate.

"Headline inflation could go up to 3%, but the rise will be mainly due to higher raw material prices," however, there are few signs that inflation expectations are approaching the bank's 2% target, he said.

The decision to keep the BOJ's interest rate threshold low, while other central banks are raising them, will certainly weaken the national currency, boost exporters' profits and push inflation higher, following the rising cost of imports.