BoJ’s Koeda: Japan's recent economic indicators have been solid overall

Key quotes

Japan's recent economic indicators have been solid overall.

Prices in Japan have, on the whole, been relatively strong recently.

Japan's economic growth is projected to be modest temporarily and then to accelerate,

As for prices, the effects of the rise in food prices, such as rice prices, are expected to wane through the first half of the next fiscal year.

As for risks to prices, bok considers firms' wage- and price-setting behavior, and developments in foreignexchange rates and import prices.

As for risks to prices, boj (not bok) considers firms' wage- and price-setting behavior, and developments in foreign exchange rates and import prices.

Comprehensive look at members' latest forecasts as of october indicates that risks to economic activity are balanced for fiscal 2025 and skewed to the downside for fiscal 2026.

Risks to prices are balanced.

If rice's price level significantly heightens consumers' perception of rising prices, this would create upside risk to prices through a rise in inflation expectations.

Market reaction

As of writing, the USD/JPY pair is up 0.20% on the day at 157.30.

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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