The Bank of Japan (BoJ) board members shared their views on the monetary policy outlook on Wednesday, per the BoJ Minutes of the December meeting.
Key quotes
The BoJ maintained the uncollateralized overnight call rate around 0.25% as per its previous guideline.
Government bond purchases continued as planned, with monthly JGB purchases of ¥4.9 trillion.
The Japanese economy showed moderate recovery, supported by improving corporate profits and stable employment, though some weakness remains.
Inflation remains in the 2.0-2.5% range, supported by rising services prices and wage growth, though the impact of past import price increases has faded.
The BoJ reviewed its long-term monetary policy since the late 1990s, acknowledging both benefits and side effects of large-scale monetary easing.
Policymakers discussed the importance of sustainable inflation near 2%, emphasizing the need for cautious adjustments to monetary policy.
While some members pushed for an interest rate hike to 0.5%, the majority voted to keep rates unchanged at 0.25%, citing uncertainties in wage growth and global economic conditions.
The BoJ reaffirmed its cautious approach, stating that any future policy adjustments will depend on inflation trends, wage growth, and global economic risks.
The BoJ policy statement was unanimously approved, confirming continued monetary easing while monitoring inflation and financial stability.
Market reaction to the BoJ Minutes
At the time of writing, USD/JPY was up 0.04% on the day at 155.58.
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.
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