BoJ’s Masu says expect to continue raising rates given current accommodative financial conditions
Bank of Japan (BoJ) policy board member Kazuyuki Masu said on Thursday that the central bank expected to continue raising interest rates given current accommodative financial conditions. However, the pace and timing of rate hike will be decided based on likelihood of achieving our baseline projections as well as risks with eye on impact of oil price moves, AI-demand and foreign exchange fluctuations.
Key quotes
Underlying inflation still below 2% but quite close to that level.
BoJ expected to continue raising interest rates given current accommodative financial conditions.
Pace, timing of rate hike will be decided based on likelihood of achieving our baseline projections as well as risks with eye on impact of oil price moves, ai-demand, FX fluctuations.
Most important thing is to avoid underlying inflation from overshooting sharply from 2%.
Rise in fuel, chemical goods prices could be one-off shock but may have broader impact on prices via distribution costs.
Market reaction
At the time of writing, the USD/JPY pair is up 0.05% on the day at 153.60.
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.