BoJ Minutes: There is some concern about weak Japanese Yen on inflation and wages

Source Fxstreet

The Bank of Japan (BoJ) board members shared their views on monetary policy outlook on Wednesday, per the BoJ Minutes of the April meeting. 

Key quotes

Member agreed consumption likely to increase moderately.

A few members said companies might become more active in raising prices, wages than initially expected.

Members discussed risks associated with impact of weak yen on inflation.

One member said impact of weak yen on inflation, wages may not prove temporary.

One member said weak yen could lead to overshoot in underlying inflation.

One member said the BOJ must scrutinise without any preset idea the chance firms may renew efforts to pass on rising import costs via price hikes.

Members shared view the BOJ must scrutinise how recent yen falls could affect underlying inflation.

One member said key to future monetary policy outlook would be capex, consumption.

One member said there were various upward risks to inflation.

A few members said fx is among key factors affecting economy, prices, boj must respond with monetary policy if outlook and risks change.

One member said the BOJ must respond with monetary policy if fx volatility affects firms' medium-, long-term inflation expectations.

One member said the BOJ must deepen debate on timing, degree of future interest rate hikes.

One member said the BOJ could raise rates moderately before it's sufficiently convinced about chance of durably hitting price goal, to avoid being forced to hike rates rapidly later.

One member said boj must raise rates at appropriate, timely manner to avoid causing stress on economy.

One member said there is sufficient chance pace of policy normalisation could accelerate if underlying inflation continues to overshoot due in part to weak yen.

Market reaction to the BoJ Minutes

At the time of writing, USD/JPY was down 0.02% on the day at 157.83. 

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 has embarked in an ultra-loose monetary policy since 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.

The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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