BoJ's Takata: Central bank is currently only pausing its policy rate hike cycle
Bank of Japan (BoJ) Board Member Hajime Takata said on Thursday that the Japanese central bank is currently only pausing its policy rate hike cycle and it should continue to make a ‘gear shift’ after a certain period of ‘wait and see.’
Key quotes
Impact of US Tariff policy will likely push down Japan's economy through such channels as a slowdown in overseas economies, a decline in domestic corporate profits, associated slowdown in wage increases.
Japan's corporate profits have remained on an improving trend recently
Consumption likely to continue increasing moderately.
Signs of home-made inflation have finally emerged in Japan.
I believe Japan's economy is at a stage where BoJ's price stability target is close to being achieved.
Will like to closely monitor whether the momentum toward achieving the price stability target, which has finally started to operate, will not be dampened by US Tariff policy.
I am paying particular attention to the possibility of significant market volatility, depending on the expectations for new US Trade policy.
Want to scrutinise whether speculation over US policy could lead to strong yen, hurt japan's corporate profits.
My view is that the BoJ needs to support economic activity for the time being by maintaining its current accommodative monetary policy stance.
At the same time, I believe BoJ should gradually and cautiously shift gears in its monetary policy.
Market reaction
As of writing, USD/JPY is trading 0.09% lower on the day at 143.55.
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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