BoJ Koeda: Need to adjust monetary policy appropriately in light of upside price risks

Sagar Dua FXStreet

Bank of Japan (BoJ) Board Member Junko Koeda said during the European trading session on Thursday that monetary conditions have remained accommodative and we need adjust them to contain upside inflation risks.

Comments

Basic stance on neutral rate is that we have to consider in a range.

Monetary environment has been accommodative.

No specific pace of rate hikes in mind.

Seeing neutral rate significantly above 1%.

Underlying inflation is stabilizing around 2%.

Pace of passing costs to prices has been in line with BoJ's main scenario in July.

Will adjust monetary policy so that underlaying inflation won't exceed 2%.

Sept rate hike reflected additional data showing resilience of the economy.

Assessment of financial conditions should be comprehensive, taking into not just neutral rate but also funding demand.

Market reaction

No major impact is seen on the Japanese Yen (JPY), following remarks from BoJ's Koeda. As of writing, USD/JPY trades 0.25% lower to near 157.90.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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