Bank of Japan policymaker calls for more interest rate hikes in 'gear shift'
Ideas
It might happens and then again it might not as the Bank of Japan usually just takes a wait and see approach and might the rate but then it might not depending on variable besides prices increases.
For example, usually, but not recently or not much the past decade, the BOJ has followed suit with what the US Federal Reserve has done. If the Fed. increases the rate the BOJ along with other global central banks will increase the rate and the same if the Fed. decreases the rate.
But for what is happening in Japan, wage increases will be a major variable and if companies or at least large companies increase the wage high enough that might be enough for the BOJ to delay any rate increase. If the wage increase is not to the liking of the BOJ they might increase the rate to try and reduce economic activity in the economy and which they hope might reduce prices.
Mr. Takata might be a hawkish board member but he alone doesn't have the final say but of course he can voice is opinion on what he thinks should be done and eventually he might get is way and sway the other BOJ member to do what he thinks is best for the Japanese economy.
But for now, its good that consumers and businesses feel that the interest rate is low enough for them to borrow in the Japanese economy as a higher interest rate tends to discourage borrowing for businesses and consumers, as a higher interest is an incentive to not borrow which reduces economic activity which then has the effect of lowering prices overall in an economy.
The Japanese economy is a resource-poor economy which means it is always subject to push up prices due to either global prices related to raw materials increasing, energy prices increasing and of course the continued weak Japanese yen which pushes up import prices in Japan.
While some might say that the 2 percent inflation target has been achieved, whomever, needs to ask the average Japanese household if prices are above the 2 percent level or more importantly ask the lower-income groups if they feel or see prices above the 2 percent inflation level.
And now, for example, unfortunately the latest mid-east conflict is and will continue to increase energy prices and as has been suggested Japan is a economy that is one of the most affected and oil, gas, and energy prices in Japan other Asian countries could see significant price increases.
But Mr Takata is probably right in that the best way to increase rate, if needed, is to do it gradually so that the side-affects of the rate increase will not cause too much harm or pain for the businesses and consumers in Japan.
The weak Japanese yen is both a positive and a negative for the Japanese economy, and the BOJ needs to decide which is best for the economy or find a way to keep the yen in a range that is good for both sides, whether its importers and the domestic economy, which the weak yen drives up prices, and or whether its Japanese exporters which benefits significantly with higher overseas prices on their products.
For a very long time, or so it seemed Japanese companies were reluctant to pass on their costs to the next in the supply chain as they felt maybe they would lost customers and or not be as welcome to customers as needed.
But those days are long gone as the profit margins are just to thin now due to increased costs related to almost everything and many companies, especially large public companies, now have to worry about the stockholder and quarterly profits and not just the customer now.
Yes, for many months or even years before and after the pandemic the BOJ was suggesting the Japanese economy was just too weak to follow what the US Fed or the EU central bank was doing, even though both of those banks after the pandemic began to increase the rate to try and reduce inflation while the BOJ kept its rate near zero, as again the idea was the Japanese economy was just too weak to be able to handle any of the side affects of a rate increase at the time.
But of course over the past few years the BOJ has been gradually increasing the rate but maybe not as much as some BOJ or Japanese government hawks would like to see.
Mr. Takata might be correct in that a rate hike might be needed but what about the potential side affects to the Japanese businesses and Japanese households and can they handle a rate hike without it affecting them too much.
Again, unfortunately, the Japanese economy, especially the Japanese domestic economy is always going to have to deal with an increase in prices, as Japan is a resource-poor country and as to import much of what it needs which means it is subject to global raw material price increases, global energy prices and then there is the weak Japanese which has significant effects in import prices in Japan.
An economy's central bank, for the most part, is supposed to be an independent agency that isn't related to any political party, as its only focus is not political leanings but managing the economy in the best way it can without political influence.
But in reality, in most countries or even advanced economies, that might be asking too much as the two new proposed board members being of like mind with the new Japanese Prime Minister seems a little too cozy of a situation.
Yes, sometimes financial markets in a domestic economy and or global financial markets can exhibit their ideas what they think a central bank is doing and even what they did related to meetings to just discuss the possibility of rate increases.
Once again, while a central bank is supposed to remain as independent as possible, its not unheard of or even realistic that a government or even the Japanese Prime Minister might give his or her ideas on what should happen or what a central bank should do to improve the economy.
That doesn't mean a central bank has to act on what someone in the government suggests or says and unfortunately one only has to look to the US to see the US Federal Reserve is under significant pressure to bend the knee to the powers to be in the US government, but has so far resisted any changes the US government has suggested.
But then again, if the Bank of Japan does decide to keep the rate, as is, or even think about decreasing the rate, or even increasing the rate, it will do so on what it think is best for the Japanese economy and not what the powers to be in Japan think is best.
Have a nice day!
