Tokyo - The Bank of Japan kept its unprecedented monetary
easing program unchanged on Thursday, just hours after the Federal Reserve
raised its key interest rate, increasing the policy divergence between the two
central banks.
The BOJ said that it would keep two key rates at current
levels and maintain the pace of its asset purchases. The outcome was forecast
by all 41 economists surveyed by Bloomberg.
With the economy slowly improving and bond yields under
control, the BOJ is in position to hold for now. But with the Fed rate
hike path putting upward pressure on yields globally, some economists have been
looking for signs the BOJ may have to raise its rate targets, particularly if
inflation begins to take hold in Japan.
The BOJ’s statement on Thursday indicated there is little
chance of a rate increase this year, said Koichi Fujishiro, senior economist at
Dai-ichi Life Research Institute.
"With the Fed not giving an indication of faster
rate increases, the BOJ must have judged it’s best to signal its easing
stance," Fujishiro said. "The BOJ is trying to make it crystal clear
that they are easing when the Fed is going the other way to keep the yen
weak."
The yen, which has fallen more against the dollar than
any other currency since the U.S. election, was little changed at 113.44 at
12:44 p.m. in Tokyo.
Governor Haruhiko Kuroda will hold a news conference at
3:30 p.m.
Read also: Fed raises interest by 25 basis points
The BOJ maintained its short-term policy rate on some
bank reserves at -0.1 percent and left its target for 10-year government bond
yields at around 0 percent. It kept the pace of its asset purchases unchanged
at about 80 trillion yen ($700 billion) annually.
The spread between US and Japanese 10-year government
bond yields this week reached the widest level since 2010, a key factor behind
expectations for dollar strength. A weaker Japanese currency creates desirable
inflationary pressures by raising the prices of imported goods, though it can
undercut purchasing power for consumers.
The Fed’s rate hike isn’t all good news for the BOJ.
Further increases in US yields would likely put more upward pressure on those in
Japan, which could force the BOJ to either increase bond purchases, conduct
more fixed-rate buying operations or raise its target for the yield.
Read more: Yellen’s path for gradual rate increases.
Eleven of 41 economists surveyed by Bloomberg said they
expected the BOJ to raise its target rate this year, while 25 predicted the BOJ
would cut the pace of its debt buying or stop stating its target for annual
purchases.
Kuroda and Deputy Governor Hiroshi Nakaso said last month
that it is too early to consider raising rates because inflation remains far
from the BOJ’s 2 percent target, underscoring a determination not to repeat the
mistake of prematurely tightening seen in 2000 and 2006.
Some BOJ officials are considering whether to give the
market further guidance on interest rates once inflation begins picking up,
according to people familiar with matter.
Price outlook
Inflation is likely to turn slightly positive due to
higher energy prices, and later begin to rise toward its 2 percent target, the
central bank said in its statement.
"The market view is that the BOJ’s inflation outlook
is very optimistic and there’s a chance that they may downgrade it down the
road," said Maiko Noguchi, a senior economist at Daiwa Securities Co.
"But the timing of such action likely won’t be the next outlook report in
April.”
The BOJ reiterated that Japan’s economy is on a moderate
recovery trend, with exports, corporate profits and business investment all
improving.
"Domestic demand is likely to follow an uptrend,
with a virtuous cycle from income to spending being maintained in both the
corporate and household sectors," thanks to highly accommodative financial
conditions and fiscal stimulus, it said.
"There is no need for the BOJ to make a move
now," said Yoshimasa Maruyama, chief market economist at SMBC Nikko
Securities in Tokyo. "The global economy is picking up and Japanese
exports are rebounding, signalling Japan’s economy is on the rise."