BoJ is said to see chance of a hike this year despite politics – Bloomberg
Citing people familiar with the matter, Bloomberg reported on Tuesday that the Bank of Japan (BoJ) officials think that it could be possible to hike the benchmark interest rate again this year as economic conditions offset the domestic political instability.
Key takeaways
“Prime Minister Shigeru Ishiba’s decision earlier this week to resign clouds the outlook both for politics and government policies, with some economists warning that a bid to shore up popular support could upend the ruling coalition’s fiscal discipline.”
“Still, the economy has performed as expected, with steady progress toward the bank’s stable inflation target, and the trade deal signed last month removed some potential risks to growth.
“The officials see that the bank is making progress toward another rate hike after the last one in January.”
“Some officials are even of the view that a hike might be appropriate as early as October.”
Bank of Japan FAQs
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%.
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.
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.
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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