BoJ’s Summary of Opinions: BoJ expects to raise interest rate if underlying inflation rises as projected

Bank of Japan (BoJ) published the Summary of Opinions from its June monetary policy meeting on June 13 and 14, with the key findings noted below.

Key quotes

One member said BOJ expected to raise interest rate if underlying inflation rises as projected.

One member said given chance of upside risk to inflation, must consider further adjustment to degree of monetary easing

One member said must raise interest rate in timely fashion without delay in accordance to heightening chance of achieving price target.

One member said BOJ can wait in shifting level of interest rate until it can confirm through data clear uptrend in inflation, inflation expectations.

One member said it is appropriate to keep easy policy for the time being due to lack of strength in consumption, some disruption to auto shipments.

One member said weak yen could lead to overshoot in inflation, which means appropriate level of policy rate would be pushed up.

One member said FX volatility affects a wide range of economic activity, and levels that deviate from fundamentals would hurt the economy.

One member said monetary policy isn't swayed by short-term FX volatility.

One member said BOJ must trim bond buying by a sizable amount in a predictable fashion.

One member said must diminish BOJ's presence in the bond market by trimming its bond buying.

One member said must normalise BOJ's balance sheet at appropriate, timely fashion while staying in close dialogue with market participants.

One member said BOJ should spend time and cautiously proceed with bond tapering.

One member said no change to BOJ's baseline scenario on economy, price data also on track.

One member said consumption lacks momentum, watching to what degree wage hikes, government steps will push up consumption.

One member said risk of inflation overshoot behind worsening consumer sentiment.

One member said underlying inflation yet to reach 2%.

One member said Japan making steady progress toward achieving price target, when looking at corporate wholesale, service price data.

Market reaction

Following the BoJ’s Summary of Opinions, the USD/JPY pair is adding 0.03% on the day to trade at 159.86, as of writing.

Bank of Japan FAQs

What is the Bank of Japan?

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%.

What has been the Bank of Japan’s policy?

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.

How do Bank of Japan’s decisions influence the Japanese Yen?

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.

Is the Bank of Japan’s ultra-loose policy likely to change soon?

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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