He Bank of Japan kept interest rates at 0.75% at its March meeting, with a vote of 8 to 1 in favor of keeping them unchanged. Governor Ueda adopted a restrictive tone, highlighting the upside risks to inflation derived from the recent rise in energy prices.
He Bank of Japan is located in a delicate balance situationweighing the inflationary impact of high energy prices against the obstacles to growth that higher import costs impose on a economy highly dependent on energyaggravated by the continued yen depreciation. Early signs from the spring pay negotiations (Shunto) have been strong, reinforcing the case for further tightening, with the next hike widely expected to come at the April or June meeting. However, a prolonged conflict in Middle East would likely delay any tightening of monetary policy, given the risks associated with growth.
In the field of political economy, the pro-growth and reflationist political stance of Prime Minister Takaichi acts as a ceiling on the pace of increases, which limits prospects for an aggressive tightening cycle in the near term. That’s probably why we’ve seen few changes in forecasts of the Bank of Japan since the start of the war.