The Japanese national flag waves at the Bank of Japan building in Tokyo, Japan March 18, 2024. REUTERS/Kim Kyung-Hoon/File Photo
Despite the rate hike, the yen has tumbled more than 1 per cent since the policy pivot, as markets' dovish reading of the BOJ's communication reinforced expectations that another rate hike would be some time off. "The BOJ has made no commitment about the future rate hike pace," a source familiar with the bank's thinking said on the March statement, a view echoed by another source.
The new approach to communication aligns the BOJ with other major central banks, including the Federal Reserve, which ditched rigid forward guidance in favour of a more discretionary approach as they hiked rates aggressively to combat soaring inflation. The remarks heighten the importance of the BOJ's fresh quarterly growth and inflation forecasts due at its next policy meeting on April 25-26, which for the first time will include projections for fiscal 2026.
Some analysts see the weak yen as a potential trigger for further rate hikes, as the currency's renewed declines could push up raw material import costs again.