BOJ Rate Increase: Updated Jan. 6, 2025.

Bank of Japan lifts policy rate to 30-yr high of 0.75% amid persisting inflation

Article source:   https://mainichi.jp/english/articles/20251219/p2g/00m/0bu/018000c

Ideas

The Bank of Japan wouldn't increase the rate unless it was confident that there won't be too many side effects to the Japanese economy. And at the same time trying to get the key rate closer to the level of the rate of other advanced economies.

Most economies when inflation is consistent will use the strategy of increasing the key rate as a higher rate is motivation not to take out business loans, consumer loans and using credit cards.

The BOJ is hoping that wage growth can help with the improvement of the economy and spur some kind of economic growth while the higher key rate might actually reduce some spending in the economy.

The Bank of Japan tries to ensure, with its communication, that whatever it says and does doesn't cause harm or upset both the domestic financial and global markets.

At the same time, it seems, as usual, with most central banks, it has kept some sense of the unknown what its going to do next as it wants to give itself room to change and maneuver as needed in the future.

The Bank of Japan, for the most part, is still has a dovish stance but it also gives itself room to make changes including increasing the key rate as needed to combat inflation of help the Japanese economy improve.

The Bank of Japan is in a difficult situation as it knows increasing the key rate can cause the bond yield to increase and at the same time might cause the Japanese yen to become weaker but its like a doctor prescribing a pill or medicine knowing full well there are going to be some side effects., but ultimately the potential for improvement is what the BOJ is looking for.

Japan is a resource-poor country and has to import much of what it needs, as as result a weak Japanese yen increases the price of imports, which are then passed-on in the supply chain including the final retail customer.

Again, the BOJ wouldn't increase the key rate if it felt that there is the possibility that it can help reduce inflation and help improve the Japanese economy.

But at the same time, its not a 100 percent guarantee that the rate increase will do what it supposed to do, as for example other advanced economies have increased the rate and its not a 100 percent full-proof remedy to reduce inflation and or improve an economy.

And yes, wage growth or companies increasing wages is not a full-proof strategy to help the economy, as to be understood, only about 30 percent of Japanese workers work for the large name-brand Japanese companies and the wage increase mainly goes to large company workers and the small and medium size company worker, which make up the other 70 percent of the Japanese workforce, usually get smaller wage increases which may or may not be more that what the inflation rate is in the economy.

There was always a goal or strategy for the lower borrowing costs, as the BOJ felt the Japanese economy at the time, was never really strong enough to handle a rate increase and that there would be too many side effects to the Japanese economy, so the reason for the low key rate for almost a decade. Was it the right decision at the time is difficult to say and running experiments on a an economy to see what would work and not work is not the same a running an experiment in a science laboratory, as all economists have to go on is observation related to what they do as see.

Deciding what it the real reason for inflation whether its cost-push factor or other factors is not easy to determine and the BOJ might be right or it might off a little as inflation could actually be above the 2 presence level. 

Most central banks want inflation to be around 2 percent, not much more, as they feel it's a manageable level where money is flowing through the economy at a good rate, not too fast and not too fast. 

Any slower they feel the economy is moving too slow and money or transactions are not enough and moving too fast or spending has become too much they might feel an economy is becoming over-heated.

Financial markets, both domestic and global watch what the BOJ is going to do almost everyday including what they say as what they say is usually clues to what might happen in the future.

As a result most central banks are very cautious or are very reserved with their communication  to public as they don't want to say or signal anything that can harm to markets or cause a 24 hour global move in the financial markets.

And again, to eliminate as many side effects as possible the BOJ or most central banks will not increase the rate anymore than is necessary as even a slight increase can have significant effects on an economy. So, if using the key rate and keeping it in its neutral zone is the best strategy that is what central banks will do.

And again, the BOJ is on purpose not saying where the neutral levels are as it wants to keep its options open and at the same there is always a level of uncertainty to where the real neutral level is or where is should be.

And yes, in theory, a rate hike potentially is supposed to cause borrowing to be more expensive, supposed to reduce spending, and supposed to reduce investment but at what level of each going to be reduced is always the key question and how long its going to take to reduce inflation or stabilize prices is again the key question, as at times is very hard to answer, as the BOJ or any central bank is dealing with human behavior and humans at times can be very unpredictable.

The current Prime Minister of Japan is a supposed fiscal dove which means she favors economic growth through government spending and even including keeping the key rate low.

But in this case, it seems she might be in favor of increasing the rate as a way way to help the Japanese economy as inflation as been continuous almost since the pandemic started and hasn't gone away just yet.

And of course a rate increase could cool the Japanese economy but again its seems to Prime Minister is willing to give the BOJ a chance with rate increase and see if it can reduce inflation and improve the economy.

Yes, for a very long time, while other central banks including the EU central bank and the US Federal Reserve were increasing the key rate many times since the pandemic the Bank of Japan kept its key rate almost at zero, as again it suggested the Japanese economy was just too weak to handle a rate increase and there were just too many potential side effects.

And yes Japan's fiscal health is always an issue whenever the Japanese government needs to increase spending to help the Japanese economy.

But the problem is the powers to be in Japan have used government spending for so long that it seems it feels there is no other way to help but to spend its way out of trouble.

Th problem is the powers to be in Japan know that its fiscal health is not the best and it has the highest debt to GDP ratio among advanced economies but feels it has to prioritize helping Japanese families and Japanese businesses over improving it fiscal health.

Have a nice day!

Editorial: Updated Nov. 16, 2025.

Editorial: PM Takaichi's gov't must collaborate with BOJ to stabilize prices, fix weak yen

Article source: https://mainichi.jp/english/articles/20251114/p2a/00m/0op/022000c

Ideas

The variance between the US key rate and the Japanese key rate as been there for a very long time, as Japan at one time said the Japanese economy is too weak to increase the rate while the US increased it rate many times after the pandemic had subsided to combat inflation.

As a result the Japanese yen has continued to be weak which has put a lot of pressure on imports, importers, Japanese businesses, and Japanese consumers.

The Bank of Japan has known for a long time it needs to increase the key rate but the BOJ is a very conservative group and they don't make changes very quickly.

They have increased the key rate a few times recently but to get the yen stronger they need to raise more in line with the US dollar.

Japanese wage increases, while needed, are not going to solve the yen problem. A wage increase might decrease the stress on Japanese households slightly, but it's not going to completely fix the situation.

It sounds like the Japanese government is using the approach of letting inflation naturally decrease at its own rate without any BOJ intervention.

There are both positives and negatives for keeping an ultra low interest rate policy and for a while it might have worked for the Japanese economy, but at the same it might not work for everyone in Japan.

The ultralow rate might be good for small and midsize businesses who need business loans to keep from going out of business and or many homeowners who have mortgages as an increase in the key rate increases their home loan payments.

The key rate, as it stands now, is good for exporters as a weak Japanese yen increases profits for exporters but at the same time increases import prices, which is affected the Japanese domestic economy a lot with higher prices than normal, which has reduced consumer spending in Japan.

What the BOJ might be really saying is we know we need to maybe increase the key rate but we are going to take more time to study what is happening, especially with the US tariff situation on Japanese companies and the overall Japanese domestic economy.

At the same time, the BOJ might be listening to what the new Japanese Prime Minister is saying or wanting and holding off on any decision to increase the key rate.

Its important to mention here, that central banks, in a democracy are supposed to be independent of the government or any political party and should follow their own ideas and not the ideas or suggestions of a government.

The Japanese government has never showed away from aggressive fiscal spending and it seems the new government is going to do the same in the future.

The gasoline tax cut is like a subsidy and some will eventually have to pay such oil importers or oil wholesalers and the Japanese government will need to subsidize these groups to make sure they have the needed profits to stay in business, while helping Japanese driver and Japanese households reduce their expenses.

It also must be remembered that Japan has one of the highest debt to GDP ratios in the world which might be 250% of its GDP, which means it's spending way more than what its economy  is producing.

There are always going to be negatives and positives in any economy and fixing the inflation situation or fixing the weak yen situation is going to help some in the economy but at the same time not help some in the economy.

For example, inflation in itself, inflation might be considered not bad and not good too and again, depending on which side of the coin you are on.

For some, inflation might be positive sign that an economy is running a good level and prices are going up as more consumers and businesses spend in the economy.

At the same time if its too high it might a stress for some in the economy and it might actually reduce business and consumer spending.

And the same the the interest rate. While a low rate helps with weaker yen with exporters it can hurt importers with higher prices and affect the Japanese domestic economy too much.

Professor Hamada might be right but he doesn't make the decisions as the BOJ does and maybe the new Prime Minister too will have something say about increasing the key rate.

Conventional or normal central bank strategies has been to increase the key rate as a way to encourage less business and consumer spending in an economy as a way to get the inflation rate down, but the BOJ has resisted such strategies as they have suggested many times the Japanese economy was just too weak to increase the key rate at this time.

The BOJ probably has known for a very long time it needs to normalize its monetary policy but as mentioned before it has taken the approach the Japanese economy is just too weak to increase the rate which would help to normalize the policy.

Improving wages is good and important but its not going to solve everything in the Japanese economy.

For example, there might be a huge variance between wages for large Japanese companies and wages for small and midsize companies in Japan. It is estimated that up to 70 percent of the Japanese workforce work for small and midsize companies, which means, if wages for them are not the same large company wages there could be significant difference in how much large company consumers spend and what small and midsize consumers spending the Japanese economy.

Productivity can be a difficult measurement as to what really is productivity in one company compared to another company. But at the same time, it's known that companies in Japan are not the most productive for whatever reason. 

Some or many Japanese companies are still very traditional and haven't really transformed into modern day 21st companies, as they rely on many of the 20th modes of doing business and long hours and a rigid hierarchy system of management.

Have a nice day!

BOJ and Inflation and I.R. Updated Aug. 2, 2025.

BOJ likely to raise inflation outlook for FY 2025, keep rate steady

Article source: https://mainichi.jp/english/articles/20250730/p2g/00m/0bu/035000c

Ideas:

The Bank of Japan is a very conservative central bank and its not going to do anything that they think might upset the financial markets at this time, especially when the Japan stock market it at an all time high.

Normally, a central bank will increase the interest rate if inflation continues but the BOJ seems a slightly different central bank that the US and EU's bank.

Of course the tariff situation is/could be a major reason why the BOJ didn't increase the key rate.

Even at 15 percent for the tariff rate, many Japanese companies might be significantly affected and again the BOJ must have taken that to account for not increasing the key rate.

The Bank of Japan, as it usually does, might think the Japanese economy is too weak for an interest rate hike at this time and they might be looking ahead as the economy could weaken even more because of the tariff situation.

Uncertainty is what companies don't want or like as they are unable to plan correctly for the next few quarters or the next year.

Japan car companies are global players as they need certainty and now as the global trading system has been completely disrupted they are unsure about the future and how to plan for it.

The 15 percent tariff might not be that much for large Japanese companies to absorb as they have larger profit margins but the same can't be said for Japanese small and mid-size companies that have much smaller profit margins and probably can't handle much more since they recently might have increased wages in April.

The major challenge is going to be for small and mid-size companies as they are very unlikely to be able to absorb the 15 percent tariff. And many of these small companies are car parts companies that export to the US and many other Japanese companies that are going to be it hard with the tariff situation.

Probably the only thing they might be able to do is pass-on the cost of the tariff to the new in the supply chain which then means the US importers that handle Japanese car parts and other products will then pass-on those costs to US customers and unfortunately demand for the products might decrease.

As mentioned in previous articles the increase in inflation in an economy could mean more money flowing through the economy which then means wages will increase as everyone is benefiting. But the Japanese economy seems to be in a different world as wage increases haven't kept up with the increases in inflation which is making the Japanese economy and very uneven economy at this time.

On top of that as inflation increases and begins settle in consumers usually begin to get used to it and get back to normalcy in the spending but that has not happened in Japan as consumer spending remains weak and again due to the low wages that are paid to Japanese workers compared to the global economy.

Ever since the pandemic Japan has been under a lot of inflation stress but for a period of time the BOJ felt the Japanese economy was just too weak to increase the key rate. But recently it has begun to address inflation situation but inflation really hasn't changed much in Japan as it seems the usually strategies to reduce inflation just aren't working in Japan or at least right now.

There just might be too many unknown variables that are affecting the Japanese economy including what is called hidden inflation which is very hard to root out.

The Bank of Japan might be looking ahead not just months but years ahead related to the tariff situation and they might think the Japanese economy is going to be too weak to handle a key rate increase, so they are preparing now for what might happen six months to a year from now.

In this case the Japanese government too, needs to step with some doable concrete strategies to help small businesses that make up the bulk of the Japanese economy and find ways to help them with the tariff situation.

Have a nice day!