BOJ Keeps Rate The Same: Updated Dec. 25, 2024.

 

Bank of Japan keeps rates on hold amid caution over wages, Trump policies

Article Source:  https://mainichi.jp/english/articles/20241219/p2g/00m/0bu/017000c

Ideas:

The Bank of Japan always moves very slowly and if they don't see enough clarity they are not going to change the rate.

The Japanese wage situation is still not clear and maybe the reason for that is up to 70 percent of Japanese wage earners don't work for the large name-brand Japanese companies but instead work for small and midsize companies that didn't give the same wage increase that large companies did.

So maybe the 70 percent who didn't get the 5+ percent wage increase that large company workers got, their disposable income is still not enough to start to spend freely in the Japanese economy.

Sustained wage growth is not going to be that strong unless small and midsize companies can get some support from the Japanese government so that they can increase wages like what large companies are able to do.

Most likely many small Japanese companies are suppliers to large Japanese companies, and large Japanese companies might not agree to the idea of small supplier companies passing-on their increased material costs to the larger companies.

The Bank of Japan needs so specify just what is a positive cycle of wages and prices as is it related to as wages increase then demand for products will increase which means companies will increase the prices.

The Bank of Japan is correct in examining the potential affects of the next administration in the US not only on the affect in the US but also how its going to affect markets and economies globally too.

Everything right now is up in there air as no one knows what is really going to happen, and maybe many Japanese export companies are worried about the possibility of their products becoming more expensive in the US due to supposed tariff situation.

While the weak Japanese yen increases the price of Japanese products in Japan, it might not be that much, but the tariff situation might be enough for US consumers to think twice about buying some Japanese products.

The Bank of Japan might be thinking that the 2014 and 2019 Japanese sales tax increases had a lot of negative side affects that cause consumer spending to decrease over several months. 

So the BOJ might be thinking a possible rate increase might have the same affect with consumers decreasing their spending and companies not going to the banks to take out loans as the rate increase will increase the loan rates in Japan.

Real wages, maybe for large company workers are good, but for all the other workers, which makes up maybe 70 percent of workers just not strong enough to overcome the continued inflation in Japan and doesn't give them enough disposable income.

Most likely, like many countries, most citizens have no idea about the interest rate hike until they have to go to the bank for a loan or they see inflation has continued on in Japan that affects their disposable income too much.

Increasing the key interest rate can some side-affects which might or might not affect all citizens in a country. In that case its unclear if the Japanese people will accept the rate increase, as again, they have no idea what it is or what it does.

It seems the Bank of Japan has not clearly explained what are the expectations for the economy and prices. Does it mean inflation should be at or below the 2 percent target and does it mean prices should be based on consumer demand and consumers spending and not based on companies passing-on their increased costs to the next in the supply chain including the final retail customer.

It years past, the Bank of Japan has often stated the Japanese economy has been too weak for a rate increase so is there GDP growth rate that the BOJ might need to see before it considers a rate increase.

Or is the Bank of Japan just kicking the can down the road until the next meeting in January and then again, they might say we need to continue to see more data.

It seems the US Fed. might be thinking as the as the new administration comes in the Fed will take a wait and see as to what is going to happen to the US economy in 2025.

Inflation in the US might be increasing again, but will it be at the same level as during the pandemic or right after the pandemic.

The Japanese yen as been weak and most likely if will continue to remain weak in the future.

No doubt the Bank of Japan has no real intention, at this time, to increase the key rate, as it hasn't done much the past 15 years to increase the rate.

The Japanese yen has remained weak and maybe the BOJ wants the rate to remain weak to help Japanese exporters, Japanese investors in foreign countries, and the record number of foreign tourists who go to Japan and spend a lot of money.

Then of course there is the domestic economy and Japanese importers who see their import prices increase because of the weak yen, and then pass-on their costs to the next in the supply chain and maybe even the final retail customer.

The BOJ's ultraloose policy was probably a good idea the time in increasing the money supply in Japan so that more consumers and businesses had access to more money which was intended to increase spending in the Japanese economy.

But as stated the results were not there or not as much as expected as the Japanese economy was stagnant and never really improved that much.

And yes, the idea or theory of pumping more money into economy is strategy that can work and has been used in many different countries to stimulate economic growth.

And yes, maybe it was time to change strategies and begin to increase the key rate, but in July the markets were caught off-guard and reacted negatively toward the rate increase.

If the Bank of Japan does actually increase the rate in January the BOJ needs to communicate clearly to the financial markets what they intend to do and not be unclear or say we are still looking at the data. 

Have a nice day!