Speaking at the press conference following the monetary policy meeting on Wednesday, Bank of Japan (BoJ) Governor Kazuo Uedasaid the Bank “considered it appropriate to adjust the degree of easing from the perspective of achieving sustainable and stable inflation of 2%.”
The BoJ raised its benchmark interest rate by 15 basis points to 0.15%-0.25% after holding rates on hold for two consecutive meetings.
Highlighted statements
Japan’s economy is recovering moderately.
Due attention should be paid to financial and foreign exchange markets and their impact on Japan’s economy and prices.
Upside risks to prices require attention.
Long-term returns must be formed in financial markets in principle.
It is appropriate to reduce JGB purchases in a predictable manner while ensuring market stability by allowing flexibility.
We will respond quickly if there is a sharp rise in long-term yields by increasing purchases and conducting fixed-rate transactions.
We will continue to raise rates, adjusting the degree of easing if the current economic and price outlook is realized.
The feedback received at the bond market group meeting is reflected in our reduction plans.
Private consumption remains solid despite the observed impacts of inflation.
It was confirmed that wage increases are becoming more widespread.
Rising wages and incomes will continue to support private consumption.
Some market participants at the July meeting expressed concerns about the outlook.
The push for wage growth is spreading to small and medium-sized businesses.
Import prices are starting to pick up, so watch out.
Prices are being more affected by currency fluctuations compared to the past.
Although not particularly strong, private consumption is considered solid.
The outcome of the spring wage negotiations was judged to be firmly reflected, looking at the April-May wage data.
We do not believe that this rate hike will have a significant negative impact on the economy.
We will closely share the basic vision on the economy and prices with the government.
We do not have a policy rate of 0.5% in mind.
In our estimate, the size of the BoJ’s balance sheet will be 7-8% smaller in about two years, but still larger than desirable long-term levels.
We will review the impact of rate hikes to this point when considering a further hike.
We do not believe that the economy and prices will slow down due to an additional rate hike.
There are positive aspects to raising rates now to avoid sudden increases in the future.
There is no change in our view that the neutral interest rate has large uncertainties.
But so far, Japan’s rates are well below the uncertain levels of the neutral rate.
We have just changed our stance to using short-term rates as the primary policy tool as we no longer need massive easing.
The weak Yen did not have much impact on our price outlook.
But we made a policy response this time, considering that the upside risks to prices are considerably large.
It is difficult to comment on the impact of the stronger Yen currency exchange rate on the economy and prices.
Whether the impact of a strong Yen is the same or less than that of a weak Yen is an ‘interesting issue’.
The weak Yen did not move our core price outlook, but we recognized it as a material risk that could move the outlook.
The latest interest rate hike could push up short-term prime rates and, subsequently, mortgage rates as well.
Wage growth is expected to precede mortgage interest payments, so the burden on homeowners will decrease.
Interest rate increases have a negative impact on households with debt while having a positive impact on those with deposits.
It is difficult to say when the next rate hike will be.
Market reaction
USD/JPY remains unchanged following these comments. The pair was last seen trading flat on the day at 152.75.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets the country’s monetary policy. Its mandate is to issue banknotes and carry out monetary and foreign exchange control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has been pursuing ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflation environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing money to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further relaxed policy by first introducing negative interest rates and then directly controlling the yield on its 10-year government bonds.
The Bank of Japan’s massive stimulus has caused the Yen to depreciate against its major currency peers. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat decades-high inflation. The Bank of Japan’s policy of keeping rates low has led to a widening spread with other currencies, dragging down the value of the Yen.
The weak yen and the surge in global energy prices have caused Japanese inflation to rise, exceeding the Bank of Japan’s 2% target. However, the Bank of Japan judges that a sustainable and stable achievement of the 2% target is still not in sight, so a sharp change in current monetary policy seems unlikely.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
