Bank of Japan policy Meeting: Finally updated Jan. 4, 2025.

 

BOJ to check effects of rate hike amid weak yen at policy meeting

Article Source:  https://mainichi.jp/english/articles/20240425/p2g/00m/0bu/011000c

Ideas:

The Bank of Japan might have increased the key rate, for the first time in 17 years but don't expect the BOJ to increase the key rate consistently like the US and EU has been doing.

The weak Japanese yen is both a positive and a negative for the Japanese economy, as its an advantage for Japanese exporters, Japanese investors in foreign markets, and foreign tourists who go to Japan because the weak Japanese yen gives them more purchasing power.

But its also a negative for Japanese importers who have to pay more for because the weak yen increases import prices going to Japan, and Japan is resource-poor country, which means it has to import much of what it needs, and Japanese importers pass-on the increased costs to the next in the supply chain including the final customer.

If the Japanese authorities did intervene in trying to prop-up the weak yen they probably did it in secret as they don't want to be seen or accused of currency manipulation. 

Yes, the weak Japanese yen is a challenge for Japanese importers and Japanese households but the BOJ has to examine what is best for the economy. That doesn't mean they don't know about the negatives of a weak yen, but the BOJ is in difficult position about how and when try and prop-up the yen.

Again, the weak Japanese yen is like a two-edged sword with both positives and negatives, and whatever the Bank of Japan does its going to do cause some in Japan to be unhappy with the action.

Unfortunately, there is always conflict in the Middle East and this  year is no different, and there are always fluctuations in the global oil markets too.

Yes, import prices keep increasing because of the weak yen, and yes, finally Japanese companies are finally looking at the big picture and increasing wages for their workers, for the first time in a very long time.

But the problem is, up to 70 percent of Japanese workers don't work for large Japanese companies but work for small and midsize companies and they might not have received the same wage increase as the large company workers did.

The Bank of Japan might not guide monetary policy but most likely it does listen carefully to what the Japanese government wants and needs for the economy, and for sure it knows what is going on with Japanese households and what they want and need, along with listening to Japanese companies and their needs.

But again, the Bank of Japan is very concerned with being considered a currency manipulator, as they don't want to feel the ire of the US Federal Reserve related to it thinking the BOJ is a currency manipulator.

And related to inflation and the Bank of Japan trying to reduce inflation, it seems, at this point, the BOJ seems to be taking a hands-off approach and just letting inflation run is course naturally.

The Bank of Japan, like most central banks is usually slow to move on any situation and will probably communicate when and if they its going to increase the rate.

And at the same time, the BOJ doesn't want to upset the financial markets in Japan and globally as anything that the BOJ is going to do, it will decide very carefully.

The BOJ has suggested before that it will take action is inflation continues to go up, but up t this point has only increase the rate one time, and the rate increase was very small.

Regarding the variance between the US dollar and the Japanese yen, the key rate difference has definitely been a major factor in the weak Japanese yen, compared to the US dollar.

During the pandemic and a few years after the US Federal Reserve was increasing the key rate many times while the Bank of Japan kept suggesting the Japanese economy was just too weak the increase the rate in Japan, which increased the variance between the two currencies.

Don't expect the Bank of Japan to reduce how many Japanese bonds it will buy as the bonds basically increases the money supply in Japan which helps to keeps rates low for Japanese households and Japanese businesses.

Yes, it increases the Japanese debt level, as Japan has one of the highest if not the highest debt to GDP levels among advanced economies, but it seems at this time the Japanese government and the BOJ are not very concerned or they don't know what to do about it.

Have a nice day!