BoJ Minutes: To continue raising policy rate if economy, prices move in line forecast
The Bank of Japan (BoJ) board members shared their views on the monetary policy outlook on Tuesday, per the BoJ Minutes of the June meeting.
Key quotes
Many members said inflation somewhat overshooting forecast but must scrutinise economic developments due to downside risk to growth from US tariff policy.
One member said must support economy with current rate level as underlying inflation likely to stagnate temporarily.
Another member said now is period where we must scrutinise impact of BOJ’s January rate hike on economy, prices.
Members shared view BOJ expected to continue raising policy rate if economy, prices move in line with its forecast.
A few members said BOJ will likely consider resuming rate hikes once there are prospects trade woes stabilise.
One member said rate hike phase may be on pause for time being, but BOJ must respond nimbly, resume rate hike depending on U.S. policy development.
One member said BOJ may need to ‘decisively’ adjust degree of monetary support even during period of uncertainty as inflation is moving above expectations.
One member said appropriate to keep policy rate at current level for time being as it will take more time to have more clarity on corporate profits, Japan-US trade talks outcome.
MOF representative said hopes BOJ takes appropriate, flexible response as needed with due consideration to bond market stability, in tapering its bond buying.
One member said the recent sharp rises in super-long yields in major economies warrants attention.
A few members said expansionary fiscal policies, loose-monetary policies sought by some countries could moderate pace of slowdown in global economy.
A few members said uncertainty remains high but downward pressure on Japan’s economy from US tariff policy may not be as strong as projected in BOJ’s previous meeting.
Some members said recent inflation overshooting projections made in April quarterly report due largely to rising rice, food costs.
One member said changes in price-setting behaviour becoming embedded in food makers, restaurants so must scrutinise whether this will spread to other sectors.
Members shared view impact of past rises in import costs, recent food price rises on inflation likely to dissipate.
Market reaction to the BoJ Minutes
At the time of writing, USD/JPY was down 0.29% on the day at 146.65.
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.
