- Forecasts an economic slowdown for the coming fiscal year as Middle East tensions weigh
- But overall, economic outlook remains stable although conditional on supply chain situation
- For now, Japanese economy shows moderate recovery signs despite some weakness
- That outlook assumes no major supply chain disruption though
- BOJ will keep raising interest rates while adjusting level of monetary support
- That will be according to changes in economic, price, and financial conditions
- Board member Takata recommended adding a reference that inflation target has been achieved
- Rising oil prices may have greater impact on inflation
- But policymakers need to be alert to the risk of additional economic slowdown due to supply shock
- BOJ has kept main scenario unchanged
- However, the odds are now lower for the outlook to be realised
- Will act appropriately to avoid lagging behind the curve
- But seeks more time in assessing Middle East conflict and the impact on economy, prices
- Underlying inflation remains slightly below the 2% target
The comments follow from the BOJ policy decision earlier, in which the central bank left the short-term interest rate unchanged at 0.75%. However, three policymakers – namely Takata, Tamura, and Nakagawa – dissented against the decision in voting to raise interest rates to 1.00%. As such, that saw a 6-3 vote split among the BOJ board on the decision.
Ueda’s remarks are keeping in line with their decision but doesn’t signal too much urgency at the balance. The fear for the BOJ is that they are now needing to respond to cost-push inflation and that may derail economic conditions. That especially since the government is also needing to balance out the fiscal side of things.
And the main concern now is that markets are already pricing in this degree of tightening. So, the BOJ has to deliver at some point or risk the Japanese yen imploding further. And that will open up a whole different can of worms.
It’s a tough task. And they won’t be the only ones having trouble navigating the current storm
