OECD and Bank Of Japan And Interest Rate: Updated March 30, 2024.

 

Bank of Japan can gradually raise interest rates from early 2024: OECD

Article Source:  https://mainichi.jp/english/articles/20240111/p2g/00m/0bu/020000c

Ideas:

The Bank of Japan, for the most part, has not followed the advice or actions of any other central bank and or economics organizations around the world, as they seem to follow their own path and not the path followed by others.

The inflation situation has nothing to do with consumer demand or consumer spending and all related to companies passing on their costs to the next in the supply chain, including the final customer.

Wage increases will be important in April of 2024, as the Bank of Japan seems to be relying on wage increases to get the Japanese economy out of its current situation.

But the challenge will be to get all companies involved and not just large Japanese companies.

Once a country or economy starts to increase its debt, like households, it seems very hard to change course. But of course it has been done but the hardships to some groups in an economy.

Japan, might want to reduce it current debt situation, but maybe there might be too many side effects to decreasing the debt. 

If interest rates were to increase it might be a major concern for many in the Japanese economy as borrowing fees could dramatically increase maybe causing the debt to increases even more.

Inflation is both a positive and negative depending on where inflation is coming from. All economies need some kind of inflation has it shows signs of economic activity.

An economy with zero inflation is just as bad as an economy with hyper-inflation, as both kinds are not good for an economy.

Most central banks want to see inflation between 2 and 4 percent, and above or below that level might not be good for an economy.

Japan's inflation, again, is mostly based on companies passing on their costs to the next in the supply chain and not related to consumer demand or consumer, which is what central banks prefer to see in an economy.

Both the Japanese government and the Bank of Japan are relying on companies to end the current situation in the Japanese economy with wage increases. But the challenge with wage increases is that companies have to find a way to pay for the wage increases and will most likely increases prices of their products to pay for the wage increases.

The other challenge is what are small and midsize companies going to do related to wage increases, as in April of 2023, mostly large companies increased wages while many small and midsize companies didn't.

The Bank of Japan might say, as it has already said that it will change its current policy, but just what is it going to do and how much will it change its current policy exactly. The BOJ will watch closely the Japanese economy and wage increases and then decide by how much it will make changes.

The OECD maybe can afford to be more optimistic while the BOJ needs to remain flexible and realistic because any changes in its policy might have real affects on Japanese households and businesses in the future.

While the BOJ has kept borrowing costs low for the good of households and businesses, it has begun to experiment, in the last few months, with increasing Japanese government bonds yields with increases above the 1.0 percent level, as most likely an experiment in small and incremental changes in its ultralow policy.

If the Japanese economy doesn't show much growth or even negative growth in the future the BOJ might not change much but might increase the rate, again, at an incremental level just to test the waters on what effects it might have on the overall Japanese economy.

Again, most governments want to see less spending, but its like a household as emergency spending come up and all budget plans are forgotten.

In Japan's case, Japan has been a high spending government economy for a very long time, and spending habits, even among governments, are not easily curbed as the habit to spend on this program or that program keeps coming up.

It will be a tall order for Japan to run a surplus in 2025 or even balance its budget as again, there are just too many spending programs that it has to deal with in 2024 and maybe in 2025 too.

As an example, the earthquake in central Japan, is another emergency situation that requires the Japanese government attention, and will of course result in more government spending.

All government have emergency funds that don't need parliamentary approval, which means they use the money anyway they want but maybe not the best way of course.

For example, maybe the US has used emergency funds to help the Ukraine war situation, with extra military resources sent to Ukraine.

The Japanese government doesn't need the approval of the OECD to use its supplementary funds and the Japanese government sees what is happening in Japan and the OECD or any other economic organization is not on the ground in Japan to see what is really happening.

Of course supplementary funds, like all funds, need to be spent used the best possible way and not used for special projects to any province or area in Japan to help Japanese politicians win future elections.

But of course, like any country, funds are not always used the best possible way.

Have a nice day and be safe!