BoJ Summary of Opinions: Further rate hikes appropriate, says member

Views on monetary policy feature in the Summary of Opinions from the October meeting, released by the Bank of Japan (BoJ). The main observations are outlined below.

What did BoJ members say?

Keeping policy unchanged would allow a little more time to assess risks to the economy and prices, one member said.

Pointing to some weakness in the economy, one member called for close monitoring of the economic and price outlook.

With underlying inflation approaching the price target, one member considered further rate increases appropriate.

Rather than exercising excessive caution, the central bank should increase rates whenever feasible, one member said.

Japan is moving into a new phase that calls for quicker rate increases towards neutral levels, according to one member.

With underlying inflation having reached 2%, one member said the BoJ must soon bring its policy rate up to the neutral level.

When adjusting monetary easing, the BOJ must monitor financial conditions for several months following each rate increase, one member said.

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Bank of Japan: Common questions

What role does the Bank of Japan play?

As Japan’s central bank, the Bank of Japan (BoJ) determines the country’s monetary policy. Its responsibilities include issuing banknotes and managing currency and monetary conditions to maintain price stability, defined by an inflation target of around 2%.

How has the Bank of Japan’s policy evolved?

Against a backdrop of low inflation, the Bank of Japan adopted an ultra-loose monetary policy in 2013 to support economic activity and lift inflation. This approach rests on Quantitative and Qualitative Easing (QQE), which involves printing banknotes to purchase assets, including government and corporate bonds, and inject liquidity. The bank stepped up its strategy in 2016, easing policy further through the introduction of negative interest rates, followed by direct control of the yield on its 10-year government bonds. A rate increase in March 2024 effectively marked the BoJ’s retreat from its ultra-loose monetary stance.

How does the Japanese Yen respond to Bank of Japan policy?

The Yen weakened against its major currency peers as a result of the Bank’s substantial stimulus. That depreciation intensified in 2022 and 2023 as the policy gap widened between the Bank of Japan and other major central banks, which raised interest rates sharply to tackle inflation at multi-decade highs. By widening interest-rate differentials with other currencies, the BoJ’s stance put downward pressure on the Yen. There was a partial reversal of this trend in 2024, following the BoJ’s decision to move away from its ultra-loose policy stance.

What prompted the Bank of Japan to begin reversing its ultra-loose policy?

Inflation in Japan climbed above the BoJ’s 2% target as Yen weakness and a surge in global energy prices pushed prices higher. Expectations of rising domestic salaries, a key driver of inflation, also helped prompt the policy shift.