BOJ and Rate Hike: Updated Dec. 8, 2024.

 

Dovish Bank of Japan official says not against rate hike, will study more data

Article Source:  https://mainichi.jp/english/articles/20241205/p2g/00m/0bu/019000c

Ideas:
The Bank of Japan usually moves very slow and the communication in this article doesn't negate that even though they always say they will look at the data and then decide.

It seems the Japanese economy has been in a recovery phase for a very long time, and for sure since the pandemic ended.

At one the Bank of Japan was communicating that the Japanese economy was too weak to increase the key rate, as the side affects were just be too much for the economy.

The Tankan business sentiment is an important metric as how the Japanese companies feel will go a long way in deciding what the BOJ is going to do. If the metric shows too much negativity, the BOJ might hold off on increasing the rate.

As far as wage data goes the BOJ has been hoping that wage increases will be more than what inflation is and if wage earners feel good enough about the wage increase to begin spending more.

But overall, don't expect much, as again, the BOJ is very cautious and doesn't make rash decisions, as they don't want to upset the financial markets.

BOJ governor could be communicating or giving a signal to the financial markets that a rate increase is coming, but the BOJ has said this before so we have to wait and see.

In the next two weeks if there is anything that is unusual in Japan or globally, the BOJ might not increase the key rate. For example if the US employment report is not good they might look at that as a negative for Japanese exports to the US.

If inflation is not where the BOJ want its to be that too might be enough to not increase the key rate. If any of the important economic data is not quite right, the BOJ might not increase the key rate.

While large companies, globally, get all the attention, the real economy, globally, is small and midsize companies, including Japan, where 70 percent of the Japanese workforce is working at small and midsize companies and not the large name brand companies.

If wages don't go up in the small and midsize companies in Japan, the Japanese economy is not going to see and increases in consumer spending as the average Japanese worker might still be holding back because their disposable income is too small to go out and spend.

And yes, the declining population is a major challenge for the Japanese economy along with the so-called labor shortage. 

Consumer spending as always been a major concern for the Japanese economy, and now add in inflation and consumers having less disposable income, the situation is not much better these say.

Structural reforms require money and some companies just don't want to spend the money to make the needed changes and some are just too old-fashioned and don't want to move into the 21st century in Japan.

With regard to China, China is going through its own period of structural reforms and they too will need some time to see them through.

Its been almost three or four years now since the pandemic hit and left so maybe Japan is taking longer than other countries to recover, and maybe before the pandemic the Japanese economy might have been in a not so good situation such as being stagnant and not growing much.

Its seems like, to be fair, that the BOJ keeps saying the same thing, and maybe for good reasons, as the Japanese economy has been stagnant for very long time, maybe almost three decades and hasn't really grown that much since the 1989 asset bubble crash in Tokyo.

However, the Japanese economy is a very stable economy even though it doesn't grow that much, so maybe its just a mature economy and will only see 1 percent or maybe 1.5 percent growth at the most from now on.

Have a nice day!