BoJ Nagoya: Solid wage growth to continue this year

Additional comments

US trade policy having negative impact but not dealing severe blow to region's economy.

Japan-China relations not having big negative impact on region's economy but firm see outlook uncertain, impact could appear ahead so watching developments carefully.

Expect solid wage hikes to continue this year and allow firms to pass on costs.

Some firms in region see China's export curb as potentially having impact on their businesses.

Important for FX to move stably reflecting fundamentals.

Excess FX volatility could hurt economic growth, make it difficult for firms to set business plans.

Watching FX moves carefully as they could have big impact on economy, prices.

Must be mindful that FX moves could have bigger impact on inflation than before as firms becoming more keen to hike wages, prices.

Weak yen benefits globally operating exporters, may help push up inbound tourism but hurts retailers dependent on domestic demand via rising import costs.

Market reaction

The impact of BoJ Nagoya's comments on the Japanese Yen (JPY) appears to be insignificant. The USD/JPY pair trades 0.12% lower to near 156.50 as of writing.

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.

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