According to the Bank of Japan (BoJ) Minutes from the January meeting, members discussed their perspectives on inflation and the outlook for monetary policy.
Key Points:
- Members acknowledged a growing possibility of reaching the Bank’s inflation target, noting that the likelihood of doing so gradually increased.
- If a positive cycle of wages and inflation is confirmed, members indicated they would consider discontinuing negative interest rates and other measures.
- Some members expressed that the risk of inflation significantly exceeding expectations has diminished.
Market Response:
Following the release of the BoJ Minutes, the USD/JPY pair experienced a 0.12% decline, trading at 151.28.
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 was the Bank of Japan’s policy?
Since 2013, the Bank of Japan has pursued an ultraloose monetary policy to boost the economy and ignite inflation in a low-inflationary environment.
The bank’s strategy is centered on Quantitative and Qualitative Easing (QQE), which entails printing notes to purchase assets such as government or corporate bonds to increase liquidity.
In 2016, the bank doubled down on this plan, loosening policy by first adopting negative interest rates and then directly manipulating the yield on its 10-year government bonds.
How do the Bank of Japan’s choices affect the Japanese yen?
The substantial stimulus provided by the Bank has led the Yen to fall in value versus its key currency counterparts. This dynamic has lately been worsened by a growing policy divergence between the Bank of Japan and other major central banks, which have chosen to raise interest rates considerably in order to combat decades of high inflation. The BoJ’s strategy of keeping interest rates low has resulted in a growing disparity with other currencies, lowering the value of the yen.
Is the Bank of Japan’s ultra-loose policy set to shift soon?
A lower yen and a surge in global energy costs have resulted in a rise in Japanese inflation, which has above the BoJ’s 2% objective. However, the Bank believes that meeting the 2% objective in a sustainable and stable manner is still a long way off, so any abrupt adjustment in present policy is unlikely.