BoJ Minutes: To keep raising rates if economy, prices move in line with its forecast

Key quotes

Many members said the US–Japan trade deal reduced uncertainty in the outlook, but tariffs still need close scrutiny for their impact on the economy and prices.
One member said the baseline scenario of temporary stagnation in growth and underlying inflation was unchanged.
Another member stressed the BOJ must scrutinise the impact of its January rate hike.
Members agreed the BOJ is expected to keep raising rates if the economy and prices move in line with forecasts.
One member said more data is needed before policy decisions, as US monetary policy and FX could shift quickly depending on US inflation and jobs.
One member argued the BOJ should move the policy rate closer to neutral as inflation strengthens and the output gap closes.
Another member said BoJ should raise rates when possible as Japan’s policy rate is below level deemed neutral, shouldn’t be too cautious and miss opportunity to hike.
One member said BoJ can exit current wait-and-see mode on rate hike as soon as this year if U.S. economy resilient, impact on Japan’s economy proves limited.

Market reaction to the BoJ Minutes

At the time of writing, USD/JPY was up 0.76% on the day at 148.75.

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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