Bank of Japan and Low Rate:

 Article Source: https://mainichi.jp/english/articles/20221219/p2g/00m/0bu/016000c

Ideas:

The Bank of Japan is most likely under pressure to either revise the 2 percent target or eventually completely scrap the ultralow policy at inflation is at a four-decade high.

The BOJ continues with the idea that inflation is just a temporary situation and as such there is no need to increase the key rate like in the US or the EU.

But of course families and companies might see it differently as they have to experience four-decade inflation everyday.

The 2 percent target is/was never a realistic target as consumer spending and consumer demand was never going to get to the 2 percent inflation target level without any real wage increase.

The Japanese economy may indeed still be fragile and maybe, compared to the US. the BOJ is following the correct strategy for Japan. 

But the US and Japan, no matter what the key rate strategy are still experiencing record levels of inflation.

Keeping the short term interest rate at minus 0.1 percent might work in Japan but it probably would never work in US.

Again the BOJ might feel its doing what is correct with regard to the economy including keeping buying unlimited amount of the 10-year bond program despite yields in trading overseas.

Perhaps the Bank of Japan is placing more importance on exports and the weak yen as a weak yen brings more into the Japanese current account. 

Maybe the feel they have no choice as they face trade-offs for the good of the overall economy.

At the same time maybe they think that increasing the key rate might cause more problems than keeping the rate at near zero.

The US reserve, compared to the Bank of Japan seems to have no problem increasing rates when needed. 

A few years ago, the US was very aligned with the the global economy, and often said its wasn't going to increase the key rate because of how it could affect the global economy.

Usually in past years, whenever the US federal reserve increased its key rate, other central banks would do the same thing as a way to maintain a normal currency.

But since the pandemic Japan has take a different approach which has caused the yen to reach record weak levels, to the point the BOJ has to resort in several yen selling situations.

Most or many Japanese companies, in the past, were always reluctant to increase prices but maybe because their profit margins have been compromised with higher import costs they now feel they have no choice either passing-on costs to other companies and or the final retail customer.

There are always positives and negatives to a weak yen. while its a definite positive in terms of more profits to export companies, but at the same time, these same export companies might be experiencing higher import material cost which could be offsetting.

When they expect prices to increase are they expecting companies to continue to increase prices a year from now and so on.

At the same time, what do they think about consumer demand and consumer spending over the same periods.

The Japanese economy might indeed rebound but for how long. And as there are going to be aggressive rate hikes and the slowing of the Chinese economy how is that going to affect te Japanese economy overall.

China has recently said it doesn't think it's economy grow more than 5 percent in the coming year.

And with the US still experiencing record inflation how is that going to affect demand for Japanese products in the future.

Have a nice day and be safe!