The Bank of Japan is expected to keep its massive monetary easing policy unchanged this year, meaning the country will enter its 10th year with an unprecedented ultra-easy policy.
The process of choosing a successor to BOJ Gov. Haruhiko Kuroda, whose term ends in April 2023, will begin in earnest this year before the central bank can normalize its monetary policy.
Kuroda told a news conference in late 2021 that the BOJ will continue its large-scale easing, including negative interest rate policy, because of the fact that we will not begin to normalize monetary policy unlike in Europe and the United States.
The European and U.S. central banks have been tightening their policies to curb rising inflation caused by spikes in materials prices.
Inflation is also affecting Japan, with producer prices reaching their highest level in almost 35 years. The consumer price index is below 1% despite the fact that many companies don't reflect the higher costs in their product prices.
The CPI growth is currently pushed down by 1.5 percentage points due to the lowering of mobile phone fees.
The CPI growth will be above 1% by April when the phone fee plunge stops affecting the index, according to Yasunari Ueno, chief market economist at Mizuho Securities Co.
It will be difficult for the BOJ to shift away from its monetary easing as prices in Japan are unlikely to reach its 2% inflation target, according to Ueno.
The Bank of England decided to hike rates late last year, while the U.S Federal Reserve expects to raise rates three times this year.
If the yen becomes weaker due to wider differences in Japanese and foreign interest rates, the prices of imports such as crude oil and other materials may increase further.
There are fears that inflation will have a negative impact on the economy if wages do not increase as well as the burdens on households will become heavier and chill economic activity.
The new omicron coronavirus variant is making policy decisions more difficult for the BOJ.
After the election for the House of Councillors in the summer, the Japanese government is expected to pick a successor to Kuroda. Some BOJ watchers believe that the successor is likely to be a former BOJ official, as Kuroda, who is from the Finance Ministry, will have served as governor for a total of 10 years.
Candidate candidates include the BOJ Deputy Gov. Besides being a BOJ deputy governor, Masayoshi Amamiya and Hiroshi Nakaso are now chairman of the Daiwa Institute of Research Ltd.