BOJ Ultra-Low Rate Policy:

 Article Source: https://mainichi.jp/english/articles/20220721/p2g/00m/0bu/030000c

Article:

TOKYO (Kyodo) -- The Bank of Japan on Thursday maintained its ultralow rate policy despite the impact it is having on the strength of the yen as the central bank looks to support the nation's nascent economic recovery, bucking the global trend of monetary tightening despite domestic inflation which is now forecast to reach its target this year.

In a quarterly outlook report, the BOJ upgraded its core consumer inflation forecast to 2.3 percent in fiscal 2022, up from its earlier forecast of 1.9 percent, reflecting surging commodity prices.

The revision reflects higher energy and raw material costs, blamed on Russia's invasion of Ukraine, along with the effect of a weak yen that inflates import prices. Risks to prices are "skewed to the upside for the time being but are generally balanced thereafter," the BOJ said.

Ideas:

Perhaps the Bank of Japan knows something that the rest of society or others don't know and still think the key rate doesn't need to be increased compared to other countries.

It must be remembered that the core consumer inflation increase is not really about consumer demand or consumer spending but about supplier costs increasing and supplier or companies passing on their costs to the next in the supply chain.

Energy and raw material costs most likely are going to continue to increase and companies and society have to figure out ways to ride out the continued increases.

The weak yen, while maybe good for exporters and their profits, it has become too weak now for most importers and other companies. A weaker yen makes the increase in energy costs and the increase in raw material cost be even higher now.

Article:

The war in Ukraine, supply bottlenecks prolonged by China's zero-COVID policy, and recession fears driven by policy tightening in major economies are casting a pall over the Japanese economy. The world's third-largest economy is now forecast to grow 2.4 percent in terms of real gross domestic product for fiscal 2022, down from 2.9 percent seen in April, the BOJ said.

The central bank retained its yield curve control program by setting its short-term interest rate at minus 0.1 percent and guiding 10-year Japanese government bond yields around zero percent.

The largely expected decision solidifies the BOJ as an outlier among other major central banks which are scrambling to tame surging inflation. It comes ahead of an expected rate hike by the European Central Bank on Thursday, its first in 11 years, and another rate increase by the U.S. Federal Reserve next week.

Ideas:

An increase in the key interest rate among different economies can have some side-effects. These side-effects might push some economies into a recession type situation.

Some side-effects might be a slow down in overall economic activity including higher loan rates as banks, higher mortage rates for the housing market, higher rates for those who already have loans, higher rates for those who need a loan and so on.

Which could result in a an overall slow-down in an economy. Some might say how can the rate high really help with all of the possible side-effects.

Its kind of like going to the doctor to get some kind of medicine and the doctor knows there are going to be some side-effects despite the medicine being good for you.

The Japanese economy might grow at an expected 2.4 percent, but does it really reflect what is happening in the overall economy. 

How many businesses are not doing too good right now becuase of inflation and or still feeling the pandemic effects.

Because many industries and companies are not back to the pre-pandemic level its probably a good idea for Bank of Japan to maintian its current position on rate hikes.

Article:

The diverging policy paths, or the widening of the interest rate divide between Japan and its U.S. and European peers, have sharply weakened the yen toward 140 versus the dollar, a psychologically important line that could test the tolerance of Japanese authorities that are increasingly concerned about currency's rapid depreciation.

The Japanese central bank retained its in-principle offer to buy unlimited amounts of 10-year bonds at a fixed rate of 0.25 percent every business day to defend its upper limit on the key yield.

Ideas:

The weakening yen compared to other currencies is of course a major challenge for the Bank of Japan. 

The problem is of course as the weak yen continues to weaken more and more importers and other companies are being stressed with higher prices and costs.

Perhaps, just perhaps, the Bank of Japan might be thinking too much about how a weak yen can help Japanease exporters and maybe trying to weigh the benefits and costs of a weak yen and the overall Japanese economy.

At some point, if the yen continues to weaken, the Japanese government might try to persuade the Bank of Japan to intervene in the market and do what it can to stabilize the yen situation.

Article:

After the yen hit a 24-year low against the dollar, the BOJ said earlier this month it needs to pay "due attention" to developments in financial and currency markets and their impact on the economy. The dollar was trading in the lower 138 yen zone immediately after the decision.

The BOJ cited extremely high uncertainty over the Japanese economy but gave a brighter assessment than the previous meeting last month. The economy "has picked up with the impact of COVID-19 waning, despite being affected by factors such as a rise in commodity prices," it said.

Ideas:

Yes, the economy might be picking up in some areas, but at the same time, there might be some parts of the economy that still not at the pre-pandemic level yet.

It could take six months to a year for the Japanese economy to finally get out of the pandemic side-effects.

But of course the inflation situation might linger on and on for a while, which might cause some or many companies to think they are still in the pandemic situation.

And for 2023, there is talk that 2023 is going to be a recession, if not already which could be even more challenges to the Japanese economy.,

Have a nice day and be safe!