Bank of Japan Not Following Policy: Updated Feb. 21, 2024

 

Bank of Japan won't rush to change policy because of Fed's outlook: chief

Article Source: https://mainichi.jp/english/articles/20231219/p2g/00m/0bu/036000c

Ideas:

The Bank of Japan is in no hurry to change its current policy, as it knows the Japanese economy is in a not so good situation right now.

And the fact that the US Federal Reserve is going to reduce its key rate is not a good reason for Japan to increase its key rate, to move it in line more with the global economy.

Even if many or most Japanese companies in April of 2024 increase salaries, as wanted by the Bank of Japan and the government of Japan, that might not be enough to change its current policy of zero interest rates.

The 2 percent inflation rate, that the BOJ keeps talking about is more related to consumer spending and consumer demand and not so much companies passing-on their costs to the next in the supply chain or the final customer.

Its quite possible that consumer demand and consumer spending will not spur an increase in overall inflation to the 2 percent level, as consumer spending is always behind or less than US consumer spending.

Japanese consumers, for the most part, are more savers than spenders. But that doesn't mean the Japanese consumers doesn't spend, it just they don't spend like the US consumer does.

For example, it my latest trip to Japan in Jan, to Yokohama Japan, a city of 3.5 million people, near Tokyo, there seemed to a lot of people at Yokohama station, shopping, which is a major shopping center area along with Sogo department store. 

Inflation in the Japanese economy might be an incentive for some not to spend and only focus on what they need and now what they really want.

Japan also has an ageing society problem, which might limit the overall consumer spending as older people tend to spend less than younger people.

But also, many young workers, unfortunately, might not be working full-time full benefit types jobs and only contract jobs and or part-time jobs as this group also watches their spending closely,

Consumer spending in Japan is maybe half of its GDP, but maybe it not really high enough to see it improve economic growth, as the Japanese economy seems to be focused exports, such as Japanese cars for economic growth.

If Japan's consumer spending, for example 60 percent of more of GDP, then it might be enough to improve economic growth.

But at 50 percent, if a small portion of that 50 percent is not spending that has a major synergistic effect on economic growth.

It might take another year or even two for the Japanese economy to fully escape stagnation and deflation as their seems to be many challenges ahead for the Japanese economy.

Have a nice and be safe!