Bank of Japan Ideas: Updated June 1, 2025.

BOJ should take cautious stance on rate hikes: board member

Article source: https://mainichi.jp/english/articles/20250522/p2g/00m/0bu/028000c

Ideas

Most central banks are very conservative and the Bank of Japan is no exception as it might be the most conservative, as for example while other central banks, globally, were decreasing its key rate, the Bank of Japan was not as it suggested the Japanese economy was too weak at the  time to decrease rates.

Every economy is different and has it own unique qualities, and has to be seen as such, and the Japanese economy is similar very much different from other economies as just because the US or the EU cuts or increases is rate doesn't mean the Bank of Japan should do the same thing.

Yes, the Bank of Japan needs to examine the data and especially the data that might be affected by a rate increase or decrease. And even more importantly the BOJ needs to examine the mood of the Japanese business community and Japanese households related to a rate increase or decrease to see what both group feel or need from the Bank of Japan.

Any time a central bank increases or decrease the key rate, its takes some time for the affects of the increase or decrease to be seen in an economy. Its not an overnight action as it could take months for any action to be seen in an economy.

Because the Japanese economy was in a stagnant mode or more importantly as deflation mode, or continuous low prices, the Bank of Japan was very reluctant, back then, to increase the key as again it said the Japanese economy was just too weak to handle rate increases. 

What the BOJ did do, over time, was lower the key rate to zero or less than zero as a way to get businesses and Japanese households to borrow money and begin to use that money in the economy.

Another idea for businesses to use their huge savings in the economy as the sub-zero interest rate meant they would be losing money each money so it was the plan of the BOJ to get companies to "use their money" or lose their money.

The Bank of Japan is/was the largest buyer of Japanese bonds to try and help the Japanese economy to get out of its current rut but the goal didn't work as the Japanese economy essentially has been stuck in  a rut for some time.

The only thing the buying of Japanese bonds did was to increase the GDP to Debt ratio which put the Japanese government into even more debt. But some would say Japan owns its own debt which is correct but still has a problem that needs to be looked at before it gets too big.

The Bank of Japan has been buying Japanese bonds for who knows how long exactly and they have a log of assets in bonds that they need to get rid of somehow before they begin to affect the Japanese economy.

The BOJ could try to sell the bonds to other countries at a reduced rate but who wants assets at a reduced rate. And or they could try and re-sell them back to the Japanese government again, at a reduced rate to reduce their balance sheet.

The Bank of Japan can't really do anything now to help the Japanese economy unit it can reduce its bloated balance sheet. When it does it has more room to maneuver and then it can help the Japanese economy even more.

Market stability is very important as the one thing the Bank of Japan doesn't want to do is cause harm in the market so they are very concerned with what they do and how it might affect the financial markets in Japan and globally too.

Have a nice day!