The Bank of Japan (BoJ) Board members shared their views on monetary policy outlook on Thursday, per the BoJ Minutes of the March meeting.
Key quotes
“One member said impact of rise in short-term rate to around 0.1% on economy will likely be limited.”
“Many members shared view long-term rates should basically be set by markets.”
“A few members said the BOJ should at some point in the future reduce bond buying amount, shrink its bond holdings.”
“A few members said BOJ March move is different from the monetary tightening phase experienced in US, Europe.”
“One member said BOJ should slowly but steadily move towards policy normalisation with an eye on economic, price developments.”
“A few members said while not a big risk now, there is chance of overshoot in Japan's inflation.”
“Expects BoJ to continue aiming for achievement of 2% inflation target in stable, sustained manner.”
“Qhile wages, capex showing positive movements, consumption lacking strength, overseas risks exist.”
“The government shares the BoJ's view that positive wage-inflation cycle is emerging.”
“BoJ must continue to support the economy for a financial standpoint to achieve sustained, domestic demenad-drive economic recovery.”
Market reaction
Following the BoJ Minutes, USD/JPY was up 0.81% on the day at 155.85.
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.
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