The Bank of Japan held its policy rate at -0.10% at its January 2024 monetary policy meeting, maintaining its negative interest rate policy. The Policy Board also kept its yield curve control framework intact, retaining the target of keeping the ten-year Japanese government bond yield at around zero percent, with 1% treated as a reference upper bound.
The Bank of Japan has made clear over recent months that it will not move to raise rates or dismantle its yield curve control settings until it has sufficient evidence that Japan is entering a virtuous cycle of rising wages and sustainably higher inflation. Inflation has run above the 2% target since 2022, but because it has been driven largely by imported energy and food costs rather than domestic demand, it has not yet met the bar the board has set for action. As of January 2024, the wage data needed to give the board that confidence had not yet arrived in conclusive form.
WAGE GROWTH AND THE SHUNTO
Governor Kazuo Ueda and his colleagues have identified wage growth as a key indicator they are monitoring. Japan's annual spring wage negotiations — the shunto — take place in the first quarter of each year. The BoJ has stated that it needs to see evidence from the shunto process before it can be confident that higher inflation will persist rather than retreating once transitory cost pressures subside.
YIELD CURVE CONTROL MAINTAINED AT CURRENT SETTINGS
The yield curve control framework, which had been progressively adjusted over the preceding year to give markets more flexibility around the ten-year JGB target, was left unchanged at the January meeting. The BoJ has been buying government bonds and treating 1% as a reference upper bound for ten-year yields.