Junko Koeda, a member of the Bank of Japan (BoJ) board, remarked during the European trading hours on Thursday that monetary conditions are still supportive, and adjustments are needed to manage potential inflationary pressures.
Comments
The fundamental view on the neutral rate is that it should be considered within a range.
The monetary environment continues to be accommodating.
There’s no predetermined rate hike schedule at present.
I see the neutral rate as being considerably above 1%.
Underlying inflation seems to be stabilizing around the 2% mark.
The rate at which costs are being passed on to prices aligns with the BoJ’s main scenario from July.
Policies will be adjusted to ensure that underlying inflation does not exceed 2%.
The September rate hike was influenced by new data indicating that the economy shows resilience.
When assessing financial conditions, it’s essential to look beyond just the neutral rate and consider funding demands as well.
Market reaction
Koeda’s remarks did not significantly affect the Japanese Yen (JPY). As of the latest update, the USD/JPY is trading about 0.25% lower, hovering around 157.90.
Bank of Japan FAQs
The Bank of Japan (BoJ) acts as the central bank of Japan, responsible for setting the country’s monetary policy. Its goal is to manage currency and ensure price stability, which includes maintaining an inflation target around 2%.
The BoJ adopted a very loose monetary policy in 2013 to boost the economy and combat low inflation. This approach involves Quantitative and Qualitative Easing (QQE), which basically means issuing money to purchase assets like government bonds to increase liquidity. In 2016, the bank intensified this strategy by implementing negative interest rates and controlling the yield on 10-year government bonds. Recently, in March 2024, the BoJ increased interest rates, stepping back from its ultra-loose stance.
The large-scale stimulus by the BoJ caused the Yen to weaken against other major currencies. This trend worsened in 2022 and 2023 due to a growing disparity in policies between the BoJ and other central banks, which were raising interest rates to address high inflation. As the BoJ maintained its course, this differential pushed the Yen’s value down. However, in 2024, this trend saw some reversal following the BoJ’s decision to move away from its ultra-loose policy.
The Yen’s depreciation, coupled with rising global energy prices, has led to heightened inflation in Japan, surpassing the BoJ’s 2% target. The expectation of increasing wages in the country, a key factor driving inflation, has also played a role in this development.
