Source: Golden Ten Data
Author: Yang Dapan
The Bank of Japan continues to maintain a dovish tone, but this may lay the groundwork for a “hawk turn” later...
Bank of Japan committee members discussed the need to remain cautious at a policy meeting last week. At that time, the Bank of Japan decided to end large-scale easing and raised interest rates for the first time in more than 10 years.
According to the minutes of the Bank of Japan meeting released on Thursday, a member stated, “In the case of terminating the negative interest rate policy, the central bank needs to emphasize its cautious stance; there is currently no need to rapidly raise the policy interest rate.”
The summary shows that even after the Commission initiated the policy normalization process, Bank of Japan Governor Kazuo Ueda and his colleagues are in favor of adopting a slow rate hike, and this position may continue to weigh on the yen. After the yen fell to its lowest point in 34 years on Wednesday, Japanese government officials strengthened their warning against speculative foreign exchange transactions.
A member of the committee pointed out, “It is important to clearly communicate through the use of various methods. The changes in the monetary policy framework proposed at this monetary policy conference are not a sign that monetary policy is shifting towards tightening.”
Speaking at the Diet on Wednesday, Ueda reiterated that the financial environment is expected to remain relaxed in view of the Bank of Japan's inflation prospects.
The Japanese economy is expected to barely maintain growth this quarter, but some economists expect that after three consecutive quarters of decline in consumer spending, the Japanese economy will shrink, and weak spending may be a key reason why committee members think it is necessary to be cautious about policy reviews.
Naoki Tamura, a hawkish figure in the Bank of Japan, said at last month's meeting that the central bank should set a starting line for the monetary policy normalization process and proceed carefully and steadily. Ueda said last week that he believes the Bank of Japan may need a series of quick rate hikes if the authorities wait too long to end negative interest rates.
A representative of the Ministry of Finance who attended the conference hinted that he wanted to maintain a loose monetary policy, citing weak consumer spending and risks in overseas economies. The representative said:
“The government believes that the recommendations made at this monetary policy meeting reflect the central bank's intention to continue to work to achieve the 2% inflation target in a sustainable and stable manner.”
One factor that may complicate the Bank of Japan's task is a weak yen. According to a foreign media survey last week, about 54% of Bank of Japan observers believe that the Bank of Japan may be forced to raise interest rates to support the yen.
Furthermore, economists at Barclays Securities Japan said in the report that according to Japan's economy, prices, and financial conditions, the risk of the Bank of Japan's interest rate hike path is biased upward. These economists said that if the yen continues to weaken excessively, or if inflation proves to be stronger than expected, the Bank of Japan may consider raising interest rates in October or January next year after raising interest rates in July this year.
Taking into account the Bank of Japan's emphasis on wage increases and the tendency of Japan's wage negotiations to set the tone for wages, Barclays economists revised the Bank of Japan's interest rate outlook to include further interest rate hikes around April 2025, raising their forecast for the Bank of Japan's final interest rate from 0.25% to 0.50%.
Editor/Jeffy