BoJ’s Masu: Underlying inflation gradually approaching 2% but don't see it overshooting
Bank of Japan (BoJ) policy board member Kazuyuki Masu said on Thursday that the policy rate is still below our estimated range on neutral rate and has been below that level for a very long time so this needs to be fixed soon.
Key quotes
Underlying inflation gradually approaching 2% but don't see it overshooting sharply above that level now.
We should proceed at a cautious approach in pushing up borrowing costs, when asked about chance of 50-basis-point rate hike.
BoJ's policy rate is still below our estimated range on neutral rate, and has been below that level for a very long time so this needs to be fixed soon.
It is unnatural for boj's policy rate to stay below its estimated range of neutral level.
Yen is rising while crude oil, global food prices rising so will scrutinise these factors comprehensively at next week's meeting in deciding on rates.
We don't know what our rate decision will be next week, as for our meetings thereafter we will think about what to do at each meeting, when asked about future pace of rate hikes.
So far we haven't seen data that shows sharp, big overshoot in inflation.
Market reaction
At the time of writing, the USD/JPY pair is up 0.05% on the day at 153.60.
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.
