BoJ Minutes: Members firmly focus on upside inflation risk
The Bank of Japan (BoJ) board members shared their views on the monetary policy outlook on Thursday, per the BoJ Minutes of the June meeting.
Key quotes
Most members agreed economy progressing as baseline, risks persist inflation could exceed 2% target.
One member noted FX factors are driving import prices higher, impacting smaller companies.
One member said Japan's real interest rate is unusually low by global standards, must be adjusted given inflation upside risks.
One member said moving BOJ’s policy rate closer to neutral would support economic, price stability over time.
Members agreed it was suitable for Bank of Japan to keep raising rates.
Some members stress BOJ should uphold guidance to continue raising rates if economy, prices align with projections.
One member urges moving policy rate closer to neutral promptly.
One member said central bank must increase rates about once every few months.
Some members said decision to pause bond taper was to prevent market instability, not to respond to fiscal policy.
One member emphasized the importance of gradually shrinking BOJ's balance sheet.
One member said central bank must eventually pursue suitable reserve level considering economic and financial developments.
Some members say debate on bond taper centers on size, but focus will likely move to duration of JGB purchases.
Cabinet Office official says BoJ must act to stabilize market, review impact of shrinking balance sheet on economy over bond purchases.
Cabinet Office representative hopes BOJ guides suitable policy considering government efforts to enhance crisis management and growth-area investment.
One member said medium- to long-term inflation expectations start shifting as market break-even inflation rate rises above 2%.
One member notes inflation expectations of firms, households have risen to about 2%.
Some members say consumer inflation set to rise significantly due to growing price hikes in second half of fiscal year.
Many members said central bank must be more attentive than before to upside price risks.
Several members said the likelihood of Japan experiencing wages, inflation escalating significantly was low.
One member noted Japan may experience inflation pass-through to wages.
Market reaction to the BoJ Minutes
At the time of writing, USD/JPY is down 0.04% on the day at 157.65.
Bank of Japan FAQs
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%.
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.
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.
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
Lallalit Srijandorn
FXStreet
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.
