BOJ Ideas: Ideas Later; Updated September 18, 2024.

 

BOJ should raise policy rate to 'at least around 1%': board member

Article Source:  https://mainichi.jp/english/articles/20240912/p2g/00m/0bu/020000c

Ideas;

There is no guarantee that a interest rate increase of 1 percent will have any affect on inflation, as maybe 1 percent will have no affect on businesses or households.

But there is always the psychological effect where any rate increase can get businesses and households to think about getting a loan.

The bank of Japan might or might not increase rate this fall, but if the weak Japanese yen continues to be weak, the BOJ might increase the rate to decrease the variance between the US rate and the Japan rate.

The short-term rates as still quite accommodative for businesses and households as rates are still low enough to not be too much of a stress, but if rates continue in the future, the rates could begin to affect loans from businesses and Japanese households.

Again, there is no economic evidence that rate hikes can or will reduce inflation, but central banks continue to use the rate as a strategy to lower inflation.

The 2 percent inflation goal is more about consumer demand and consumer spending and not about companies passing-on their costs to the next in the supply chain.

The Bank of Japan has had a long time to try and improve the Japanese economy, but whether good or not good, the BOJ hasn't been able to do much related to inflation or the weak Japanese yen.

The Japanese government has known for a long time there are labor shortages, or that there was going to be labor shortages. Its a very complicated situation, but if the retirement age was more like the US, where there is no age limit, there might be a less of a labor shortage as older workers continue to work if they want.

And then there is the idea of immigration and allowing more foreign workers in Japan. Its different than the US, but the idea is the same where more foreign labor improves the economy overall.

How the financial markets react, to anything, not just what the BOJ does, as the financial markets stability will help decide what the BOJ does.

The BOJ might make a move in the fall but it might wait for the weather to cool down and the typhoon season to fade away so that the Japanese economy can get back to some normalcy.

Again, if there are non-normal activity in the Japanese economy during the fall, the BOJ will again wait to again get some normalcy.

There are many factors to be considered related to the Japanese economy and the US and the overall global factors. However, if the BOJ is too much swayed by all that is happening, it needs to focus on what are the most important factors not every variable.

Japan's GDP might be improving but its a long way from being constantly improving. Wages have improved but more wage growth is needed in Japan for consumers to feel better and begin to spend consistently again.

Again, the BOJ might make a more this fall and it might not be that big of a move as they don't want to increase the rate too much too soon. Maybe in 2025 or 2026 they might begin to get the policy in-line with the US and the EU.

Even if inflation and the Japanese economy does align with BOJ expectations, they might not increase the rate very much or not at all, if the financial markets are not stable or  become very unstable this fall.

The BOJ has always been very conservative compared to what the US Federal Reserve and the EU central bank has done in recent years.

But they might be changing to try, again, to get more in-line with the US and the EU.

Have a nice day!