Bank of Japan (BoJ) published the Summary of Opinions from its March monetary policy meeting on April 25 and 26, with the key findings noted below.
Key quotes
“One member said if trend inflation accelerates, BOJ will adjust degree of monetary easing but accommodative financial environment likely to continue for time being.”
“One member said if forecasts under quarterly report are met, interest rates might rise to levels higher than markets currently price in.”
“One member said one option would be to hike rates moderately in accordance with economic, price, financial developments, to avoid shock from abrupt policy shift.”
“One member said must hike rates at appropriate timing as likelihood of achieving our forecasts heightens.”
“One member said BoJ must deepen debate on timing, pace of future rate hike.”
“One member said extent of consumption recovery toward latter half of this year will be key in considering next policy change timing.”
“One member said if inflation overshoot continues against backdrop of weak yen, pace of policy normalisation may become faster.”
“One member said households' purchasing power remains weak so must maintain easy monetary conditions for time being.”
“One member said appropriate for BOJ to indicate, at some point, path toward reducing its bond buying.”
“One member said BOJ must proceed with shrinking its balance sheet including by reducing bond buying when right time comes.”
“One member said even if it takes a long time, BOJ must eventually eliminate its ETF holdings.”
“One member said must be mindful of upside risk to inflation as weak yen, rising crude oil prices affecting cost-push pressure.”
“One member said weak yen weighs on economy short-term, but may push up trend inflation by boosting output, income in medium-, to long-term horizon.”
“One member said must be vigilant to various upside risks to inflation, such as weak yen, fiscal stimulus and chance of stronger wage-inflation spiral.”
Market reaction
Following the BoJ’s Summary of Opinions, the USD/JPY pair is losing 0.03% on the day to trade at 155.47, as of writing.
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 has embarked in an ultra-loose monetary policy since 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.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.
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