by Leika Kihara

TOKYO (Reuters) – The Bank of Japan (BoJ) left its ultra-low rate target unchanged on Friday while deciding to conduct a thorough review of its monetary policy, setting the stage for its new governor Kazuo Ueda to gradually end to the massive easing program decided by his predecessor.

The Japanese central bank unsurprisingly decided to maintain the target for short-term rates at -0.1% and to contain the yield on ten-year government bonds around zero.

The BoJ, however, changed its forecast, removing any reference to the need to keep interest rates at their “current or lower levels”, giving it more room to manoeuvre.

The institution also said it would examine the various monetary easing measures taken over the past 25 years to combat deflation, and their impact on the economy and prices.

“The Bank has decided to carry out a general review of monetary policy, within about a year to a year and a half,” the BoJ said in a statement.

During a press conference, Kazuo Ueda explained that the general review would not be linked to short-term changes in monetary policy and stressed the need to wait for more signs that inflation has reached a sustainable level. central bank target of 2%.

“If the inflationary trend increases gradually, it will take some time to reach our inflation target,” he said.

“The risk of missing our price target with premature monetary tightening is greater than the risk of inflation rising above 2% due to delayed tightening,” he added.

In financial markets, the yen hit a one-week low against the dollar while Japanese bonds and equities rose on the prospect of only a very gradual exit from the BoJ’s ultra-accommodative policy.

In its new quarterly projections released on Friday, the central bank said it expects core consumer price inflation of 1.8% for the current fiscal year ending March 2024 and 2% for the following year. .

In January, the central bank predicted inflation of 1.6% this year and 1.8% the year after.

(Reportage Leika Kihara; Camille Raynaud and Blandine Hénault, edited by Kate Entringer)

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