Board members of the Bank of Japan (BoJ) shared their views on the prospects for monetary policy on Thursday, according to the BoJ’s minutes from its March meeting.
Key quotes
Several members believe it would be appropriate to keep the base rate at 0.75%.
Members express concern about the rebound in inflation caused by rising oil prices.
Some members believe that it was appropriate to keep interest rates steady in the face of increased uncertainty in the Middle East.
The member argues that the central bank should soon modify the deeply negative real interest rate.
One member noted the lack of evidence that previous rate increases had reduced the impact of stimulus on the economy.
Members agreed that the central bank should continue to raise interest rates as the economic situation and prices improve.
One member said that starting from the next policy meeting, the central bank should carefully assess whether financial conditions remained accommodative after the previous rate hike.
One member said the BOJ should adjust the level of monetary easing without long gaps between changes.
Another Council member said the central bank would have to raise interest rates without hesitation unless there were signs of a earnest deterioration in the economic situation or the wage setting situation in compact businesses.
Another member said that with interest rates still well below neutral, the lag in inflation risk would force the BOJ to tighten monetary policy quickly and significantly.
Several members said that if supply shocks resulting from tensions in the Middle East were short-lived, the primary response would be to “analyze” their effects.
Members say that if shocks persist and raise concerns about second-round effects, the central bank must respond by assessing the impact of policy on core inflation.
One member warned that cost pressures from higher oil prices could trigger a 1970s-style stagflation characterized by economic stagnation and rising prices.
One member emphasized the focus on the risk of price increases.
The member says the bank may accelerate interest rate increases if the conflict in the Middle East drags on.
One member warns of risks The Bank of Japan may be unintentionally delaying inflation risks.
One member said that the central bank should focus on solving the problem of increased prices caused by second-round effects, i.e. increased inflation expectations.
The representative of the Ministry of Finance expressed concern that the raise in energy costs could harm the economy, calling for close monitoring of the market with the utmost vigilance.
Market reaction to the BoJ protocol
As of this writing, USD/JPY is up 0.04% today at 156.45.
Frequently asked questions about the Bank of Japan
The Bank of Japan (BoJ) is Japan’s central bank that sets the country’s monetary policy. Its mandate is to issue banknotes and exercise currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan began ultra-loose monetary policy in 2013 to stimulate the economy and fuel inflation in a low-inflation environment. The bank’s policy is based on quantitative and qualitative easing (QQE), which is printing banknotes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened its policy, first introducing negative interest rates and then directly controlling the yield on 10-year Treasury bonds. In March 2024, the BoJ raised interest rates, effectively withdrawing from its ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the yen to depreciate against other major currencies. This process intensified in 2022 and 2023 as policy divergences widened between the Bank of Japan and other major central banks, which decided to sharply raise interest rates to combat decades-long levels of inflation. The BoJ’s policy led to a deepening differential against other currencies, which resulted in a decline in the value of the yen. This trend was partially reversed in 2024, when the BOJ decided to abandon its ultra-loose policy stance.
A weaker yen and a edged raise in global energy prices led to a rise in inflation in Japan, which exceeded the BoJ’s target of 2%. The prospect of rising wages in the country – a key element driving inflation – also contributed to this move.
