According to sources, at its April meeting, the results of which will be announced next Friday, the Bank of Japan will leave the interest rate at -0.1% and the 10-year bond yield around zero with an implicit cap of 0.5%. The sources also said that the Bank of Japan is likely to confirm its forward guidance, which assumes keeping rates at an ultra-low level.
Earlier today, the Ministry of Internal Affairs and Communications said that in March, the overall CPI rose by 3.2% per annum, as expected, after an increase of 3.3% per annum in February. The core CPI, which excludes volatile food prices, rose 3.1% per annum after a similar increase in February. Index hitting a four-decade high, putting pressure on the Bank of Japan (BOJ) to shift away from its ultra-loose monetary policy stance.
But sources said that despite wage growth and high inflation, the Central Bank is in no hurry to cancel its stimulus policy, given the risks of slowing growth abroad and uncertainty about whether wage increases will continue next year.
"Since inflation in Japan is still above the target level, the Central Bank can be patient in contemplating tweaks to yield curve control," the sources added.