As was widely expected, the Bank of Japan kept ultra-loose monetary policy on Tuesday, highlighting the decision of policymakers to hold off on raising interest rates until they have more information about whether wage growth will be sufficient to sustain inflation below its target of 2%.
Moreover, the central bank has not altered its dovish policy guidance, which promises to undertake further monetary easing actions "without hesitation" when necessary.
When it comes to the timing of the central bank's potential end to its negative interest rate policy, investors are paying close attention to any cues Governor Kazuo Ueda may provide during his post-meeting briefing.
The BOJ maintained its short-term rate target of -0.1% and its 10-year governmental bond yield target of approximately 0% during the two-day meeting that concluded on Tuesday. Furthermore, it did not alter the 1.0% loose upper band that was set for the 10-year yield.
The BOJ noted in a statement that there are very high level of uncertainty regarding the Japanese economy and prices.
At 3:30 p.m., Governor Ueda is scheduled to hold a press conference in order to provide an explanation of the policy decision.
Since inflation in Japan has remained above 2% for more than a year and some businesses have indicated that they are willing to continue raising wages, there is a greater likelihood that the policy will change soon.
The BOJ lifted the cap of the yield on the 10-year bond in July, loosening its control over the cost of long-term borrowing. In an indication that Ueda was gradually moving away from the radical stimulus of his predecessor, the cap was softened to a loose reference in October.
When asked when they thought the BOJ would end its negative rate policy, more than 80% of economists surveyed in November said they thought it would most likely happen in April of next year. Some predict a policy change in January.
According to analysts, the BOJ might find it simpler to make changes in January and April when it releases its quarterly outlook report that includes updated growth and price forecasts.
However, with the European and American central banks signaling that they are done raising interest rates, the rapidly shifting landscape of global monetary policy may make the BOJ's decision more complicated.
Raising rates during a period when other central banks are lowering them might cause the yen to surge, analysts say, hurting large manufacturers' profits and discouraging them from raising wages.
The BOJ's policy path is further complicated by political factors, such as the ongoing inflation that is attributed to driving Prime Minister Fumio Kishida's ratings of approval to all-time lows.