BoJ’s Nakagawa: Will make appropriate policy decision

Additional takeaways

Companies retaining capex appetite despite impact of US tariffs, uncertainty over outlook.

Consumption remains firm but demand for non-durable goods weakening due to rising food prices.

Services consumption moving sideways after increasing moderately as a trend.

Medium-, long-term inflation expectations heightening gradually towards 2% as a whole.

No change to baseline scenario on overseas economy.

Japanese corporate profits likely to weaken due to tariff impact, but improve thereafter as overseas economy recovers, consumption increases due to rising real wages.

Consumption likely to move sideways but resume moderate uptrend as inflation moderates.

Among risks I am focusing on include outlook of us economy such as chance that impact of tariff on economy, prices may prove bigger than expected, growth expectations for ai-driven investment change.

Another risk is impact of trade policy on global economy, increase in chinese exports to non-US markets could weigh on global, Japanese economies.

Japanese companies becoming more active in raising prices, wages, which could affect households' sentiment, inflation expectations.

There is also risk rising inflation could weaken demand, prod firms to cut costs and discourage them from raising wages.

Market reaction

Optimism surrounding the US government reopening overshadows the BoJ commentary, as USD/JPY gains 0.33% on the day so far at 153.95, when writing.

(The title and the story were corrected on November 10 at 4:43 GMT to say 'Nakagawa', not Nagakawa.)

Bank of Japan FAQs

What is the Bank of Japan?

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%.

What has been the Bank of Japan’s policy?

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.

How do Bank of Japan’s decisions influence the Japanese Yen?

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.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

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.