Bank of Japan and Inflation: Updated Jan 16, 2024

 

Bank of Japan chief sees increasing chance of achieving 2% inflation goal

Article source: https://mainichi.jp/english/articles/20231106/p2g/00m/0bu/016000c

Ideas:

Usually, the Bank of Japan prefers to sound positive as it doesn't want to scare the financial markets, So it always uses language that is somewhat positive.

The use of Japanese companies needs to be understood that the Bank of Japan is mostly talking about large companies as in April of 2023, for the most part, only large companies increased wages to 3.5%.

And again, 70% percent of Japanese wage earners don't work for large companies but small or midsize companies, and many of the small and midsize companies either were unable to increase wages or just didn't want to do it at the times.

The Bank of Japan has been trying to reach the 2% target for many years, and hasn't actually achieved it yet. But it might be coming soon.

 has kept the Japanese economy in a state of limbo and not growing much.

In the present time, as to not rock the boat and or cause harm in the financial markets, the Bank of Japan most likely will stay the course on its current monetary policy.

There might be some significant changes in later spring of 2024, it companies again increase wages to the point that the Bank of Japan is satisfied that it good for the economy.

If wage increases in April of 2024 turn out to be less than positive, then most likely the Bank of Japan will not change its ultralow policy other than a small tweak here or there.

Unwinding the Bank of Japan's ultralow policy is not going to be easy as it could take a long time to unravel the decade long policy, as the Bank of Japan doesn't want to cause any major harm to the Japanese economy and or the financial markets.

As such it might take very small or micro-small step to unravel the policy. And or it will make some changes and then watch and see what happens when it makes the changes.

Short-term interest rates might go from minus 0.1 to maybe plus 0.1 and then the Bank of Japan will watch carefully to see how the Japanese economy reacts and the financial markets react. If the Japanese economy and the financial markets react positively with no major problems, then the BOJ will consider another rage hike to 0.2 percent for example.

So it sounds like the Bank of Japan is planning on small changes in the market and then seeing how those changes might affect the economy and the financial markets.

Regarding large-scale bond purchases, the Bank of Japan and the Japanese government already have the large debt to GDP ratio among advanced economies.

But at the same time, most if not all of the debt related to bonds is owned by Japan and it is not external, like the Greece case in 2010.

But again, April 2024, the beginning of the Japanese fiscal year, if companies give larger than expected wage increases, then the Bank of Japan will most likely begin to make some changes its it current policy. If the wage increases are not that significant then the Bank of Japan might not make any changes, or if they do makes changes, they might not be that significant.

Have a nice day and be safe!