2021-09-21-牛津经济研究院-Japan_Inflation_tanked,_but_new_premier_won_t_alter_BOJ_course_3页_194kb

Bank of Japan (BoJ) maintained its monetary policy unchanged at a recent meeting, leaving short-term and long-term interest rates unchanged and continuing limited government bond purchases since mid-June without buying ETFs.

Inflation is expected to deteriorate further due to a CPI rebaseline in August, amplifying negative impacts from factors like mobile phone charge cuts. The BoJ is likely to lower its near-term inflation forecast to -0.35% for 2021 and may face challenges in raising inflation expectations.

A change in Japanese Premier leadership is unlikely to alter BoJ policy, as major contenders prefer not to pursue aggressive monetary reflation, though the BoJ's yield curve control remains key for fiscal flexibility.

The BoJ is sticking with current interest rate settings due to risks such as exchange rate volatility and potential side effects on regional banks, and is unlikely to further cut negative rates. It may expand incentivized funding-for-lending schemes instead to support disinflation efforts.

Political and economic factors, including pandemic-related uncertainties, mean monetary policy will remain accommodative, with low and stable long-term rates continuing to enable fiscal support, despite no immediate policy adjustments.