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

October’s monetary policy meeting is the focus of the Bank of Japan (BoJ)’s newly published Summary of Opinions. The main findings follow.

Policy views in focus

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

Citing pockets of economic weakness, one member calls for close monitoring of the outlook for the economy and prices.

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

When conditions permit, the central bank should increase rates without being overly cautious, 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 now at 2%, the BoJ must soon bring its policy rate to a neutral level, one member said.

As it adjusts monetary easing, the BOJ must monitor financial conditions for several months following each rate rise, one member said.

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Bank of Japan: Key Questions

The Bank of Japan’s role

Responsibility for setting Japan’s monetary policy rests with its central bank, the Bank of Japan (BoJ). The bank is mandated to issue banknotes and manage currency and monetary conditions to maintain price stability. This translates into an inflation target of around 2%.

The Bank of Japan’s policy path

In 2013, against a backdrop of low inflation, the Bank of Japan adopted an ultra-loose monetary stance to support the economy and lift price growth. Quantitative and Qualitative Easing (QQE) underpins this approach: the bank prints money to purchase assets, including government and corporate bonds, and inject liquidity. It expanded the strategy in 2016, easing policy further by introducing negative interest rates before moving to direct control of 10-year government bond yields. A rate increase in March 2024 marked the BoJ’s effective withdrawal from its ultra-loose stance.

The Bank of Japan’s impact on the Japanese Yen

Against other major currencies, the Yen weakened under the Bank’s extensive stimulus programme. The decline intensified in 2022 and 2023 as the policy gap between the Bank of Japan and other leading central banks grew. Those central banks raised rates sharply to tackle inflation at multi-decade highs. The BoJ’s stance widened interest rate differentials with other currencies, putting downward pressure on the Yen. The currency partly reversed this trend in 2024 after the BoJ opted to end its ultra-loose policy stance.

The drivers of the Bank of Japan’s policy unwinding

Inflation in Japan moved above the BoJ’s 2% target as a weaker Yen and surging global energy prices pushed prices higher. Expectations of domestic wage increases, a key driver of inflation, also helped prompt the decision to start unwinding ultra-loose policy.