BoJ Minutes: Most members agree the likelihood of hitting 2% target had been rising
The Bank of Japan (BoJ) board members shared their views on the monetary policy outlook on Tuesday, per the BoJ Minutes of the January meeting.
Key quotes
Most Board of Japan members expressed the recognition that the likelihood of realizing the outlook had been rising.
Some members recognized real interest rates were expected to stay significantly negative even after the rate hike.
Risk price expectations may surpass 2%.
Most members expressed the recognition that the likelihood of realizing the outlook had been rising.
One member expressed the view that, if underlying inflation increased, the BOJ would need to raise the policy interest rate accordingly in a gradual manner.
One member continued that it would be necessary for the BoJ to adjust the degree of monetary accommodation from the viewpoint of avoiding the yen’s depreciation and the overheating of financial activities.
One member said it would be desirable for BoJ to bear in mind that the policy interest rate should be at around 1% in the second half of fiscal 2025.
Market reaction to the BoJ Minutes
At the time of writing, USD/JPY was up 0.02% on the day at 150.74.
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.