More Bank Of Japan News: Update Dec. 3, 2024

 

Bank of Japan chief points to hiking interest rates if inflation keeps rising

Article Source:  https://mainichi.jp/english/articles/20240420/p2g/00m/0bu/004000c

Ideas:

Japan didn't interest rates for many yeas, as they felt the Japanese economy, during and after the pandemic was just too weak. The Bank of Japan didn't follow the usual strategy of other central banks, like the US bank of the EU bank, and increase the rate as inflation increased.

It remains to be seen just how much the BOJ will increase rates in the future as they have a long way to go to reach the level of the US and the EU, as way to stabilized the weak Japanese yen.

There both positives and negatives to increasing the key rate and the BOJ has to decide which are most important to the Japanese economy in the future.

The Bank of Japan knows that all inflation is the same, as some inflation is related to companies passing-on their costs to the next in the supply, which might be considered negative inflation.

And then there is positive inflation which is inflation due to increasing prices due to increased demand and increased consumer spending in the Japanese economy.

Most likely if inflation is below the 2 percent BOJ target its positive inflation that hasn't been achieved yet in the Japanese economy.

The short-term interest rate range of zero to 0.1 is way below the US rate, which might be a reason for the weak Japanese yen.

The main reason Japan has kept it short-term rate very low is too get businesses and Japanese households to borrow easy money and use it in the Japanese economy, but so far, at least with households, they haven't increased their spending.

However, the Bank of Japan, like most central banks are are very conservative group and they are not going to just increase the key rate if the data is not there to support a rate increase.

The Bank of Japan might be the biggest owner of Japanese government bonds and for the most part, there are not that many external owners of Japanese bonds.

The only positive, related to Japanese government debt to GDP ratio is that most of the debt is owned by the Bank of Japan and there are very few external owners, which was not the case with Greece in 2010.

The Bank of Japan usually moves very slow and reacts very slow as they don't want to upset the financial markets with any sudden moves.

Since there hasn't been any real concrete signs that the Bank of Japan is going to increase the key rate, most likely nothing much is going to happen in the Thursday meeting.

The BOJ might raise it inflation forecast, but that is not a sign of a change in the key rate, as again, they will move very slow and watch everything very carefully in the future.

In years past, as inflation increase the BOJ didn't increase the key rate, as at that time, again, they felt the Japanese economy was too weak and they also felt there were potentially too many side affects for the Japanese economy and increasing the key rate.

The weak Japanese yen has been a negative for the Japanese domestic economy for some time, but also even though the Japan is a resource-poor country, with the weak yen increasing import prices, there are some positives related to a weak yen too.

Japan has to import much of what is needs and with the weak yen, it increases import prices and importers of course pass-on their costs to the next in the supply chain.

The positives of the weak yen are that Japanese exporters see higher revenue for the products along with Japanese investors see more returns and of course the record number of foreign tourists have more purchasing power with the weak yen.

What Ueda, the Bank of Japan governor is saying here is when the BOJ increases the rate, they don't have enough data to see how the increased rate would affect the Japanese economy, as interest rates go up, borrowing costs go up and the BOJ just don't have enough data to see how the increased interest rate affects borrowing.

So the BOJ is basically in the dark after many years of not increasing the rate for a very long time, and no data to look at related to increasing the key rate.

Have a nice day!