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BoJ Minutes: Central bank will continue rate hikes if economic and price forecasts meet

The Bank of Japan (BoJ) board members shared their views on the monetary policy outlook on Wednesday, per the BoJ Minutes of the September meeting.  

Key quotes

Rapid decline in market sentiment in August 2024 due to U.S. economic slowdown fears. Japan’s markets particularly volatile due to quick position adjustments.

U.S. economy's future remains unclear, affecting global economic stability. Concerns over potential divergence in economic cycles among advanced economies.

U.S. growth led by private consumption but faces inflation uncertainties; potential risks if high expectations for AI decline.

On Japan's economy - Moderate recovery aligned with July 2024 outlook, resilient wage and consumption growth, though impacted by external factors.

Bank of Japan (BOJ) plans gradual policy rate increases, cautious of overseas economic uncertainties, especially from the U.S.

Plans to enhance transparency with market participants, emphasizing data-driven decisions over projections to avoid market surprises.

Market reaction to the BoJ Minutes

At the time of writing, USD/JPY was up 0.03% on the day at 151.56.

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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