Photo/Illutration BOJ Governor Kazuo Ueda speaks at an Upper House Committee on Financial Affairs on June 13. (Koichi Ueda)

The Bank of Japan decided to continue its long massive monetary easing policy on June 16 believing that the measures are still needed to support the Japanese economy. 

BOJ Policy Board members agreed on the continuation at their monetary policy meeting on June 16 although inflation has been exceeding the central bank’s 2 percent target for some time. 

The decision means that the BOJ will continue its measures including yield curve control (YCC), a measure to artificially keep long-term interest rates low by buying government bonds in bulk, and maintaining a negative interest rate.

The June 16 meeting was the second monetary policy meeting since Kazuo Ueda became the central bank’s new governor in April.

The last time that the BOJ had a new governor was 10 years ago, when Ueda’s predecessor, Haruhiko Kuroda, assumed the role.

What the markets are watching the closest is when and how the BOJ will revise its YCC policy.

Ueda himself has expressed concerns about the secondary effects of maintaining the policy.

Under the YCC measure, the BOJ has set an upper limit for long-term interest rates, which normally should be determined by market forces, to rein in the rates.

Market participants have criticized the policy by saying it has made appropriate rate levels unclear, weakening the markets’ function.

In addition, the markets have become increasingly anxious that the BOJ is purchasing too many government bonds to successfully execute the policy.

However, long-term interest rates have recently been hovering below the BOJ’s cap, partly due to heightened anxiety about the global economy including the situations in the United States and European countries.

Therefore, it is believed that the BOJ’s policy board determined on June 16 that it is not necessary to modify its YCC policy for now.

The consumer price index, excluding perishables, rose 3.4 percent in April year on year, exceeding the BOJ’s 2 percent inflation target.

Higher prices have been putting more pressure on households and businesses, but the BOJ believes so far that the major reason for the current price rise is soaring global resource prices, including that of raw materials.

It has analyzed that the current CPI rise is not the type that the central bank is aiming for--a rise in prices brought by a virtuous economic cycle involving strong consumer demand and wage increases.

In this year’s annual spring wage negotiations between companies and labor unions, businesses agreed to raise wages at the largest rate in around 30 years.

Despite the boost, it is believed that the BOJ wants to see if this wage trend will continue in the coming years.

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