The reasons why the Japanese central bank raised interest today
The Central Bank of Japan raised the interest rate by 25 basis points to 0.5%, the highest level in 17 years, and the largest increase in interest rates since February 2007.
So what are the reasons for raising interest from the Bank of Japan today ?
- Signs of a constant wage rise.
- The absence of market turmoil following the inauguration of Trump.
- They would like to avoid further weakening of the Japanese yen, especially if the Fed continues to hold off on interest rate cuts for a long time.
The most important points contained in the bank's monetary policy statement were:
- The Bank of Japan made its decision on interest rates by an 8-1 majority, and member Nakamura was the opponent of the decision to raise interest rates.
- The Bank of Japan stated that real interest rates remain at very low levels.
- The Bank of Japan has indicated that it will continue to raise the interest rate if the economy and prices move in line with its expectations.
- The Bank of Japan has confirmed that it will manage monetary policy appropriately to achieve the 2% inflation target in a sustainable and stable manner.
- The Bank of Japan noted that the prospects for Japan's economy to meet its forecasts are increasing.
- That Japan's economy is recovering moderately, albeit with some weaknesses.
- Several companies have indicated that they plan to offer strong wage increases in the upcoming spring wage negotiations.
- The Bank of Japan noted that core inflation is gradually rising towards its target.
- The markets remain generally stable, despite the persistence of many uncertainties.
- The Bank of Japan also emphasized that even after the policy shift, real interest rates will remain extremely negative, and accommodative monetary conditions will remain in place.
- Consumption is rising moderately as a trend.
- The potential growth rate in Japan is estimated at about 0.5%.
- Inflation slightly exceeds expectations due to higher import prices due to a weak yen and increased rice costs.
- Inflation expectations in the medium and long term are increasing moderately.
- It is clear that nominal wages are rising, and more Japanese companies are transferring higher labor and distribution costs.
- The Bank of Japan expects inflation expectations to gradually rise as changes in the behavior of companies and households continue.
Some reports also made it clear that member Nakamura opposed the interest rate hike this meeting and wanted to raise interest at the next meeting after confirming the high strength of corporate profits.
Following the interest rate hike, Kazuo Ueda spoke at the press conference and said:-
- The economy is growing moderately according to the forecasts of the Bank of Japan, and prices are now high.
- Real interest rates are still very low, and there is a need to remove some easing.
- As interest rates continue to be extremely negative, the Bank of Japan will continue to raise interest rates.
- However, the pace and timing will depend on the data.
- There is still a long way to go to reach the neutral interest rate, but we are getting closer to it.
- We do not want to wait until significant negative effects from raising interest rates appear.
- We prefer to proceed with caution.
- Gradually directing the policy to get out of too accommodative conditions but without causing inflation to rise would be ideal.
- There is no specific level in mind that acts as a barrier to interest rates.
- An upward revision of inflation expectations due mostly to the factor of paying costs.
- The economy and prices are on the right track with our forecasts as higher wages will be reflected in prices.
- We just have to pay attention to Trump's tariffs and their impact on the global economy.
