BoJ Oct minutes: If inflation trends align with expectations gradual rate hikes possible

December 23, 2024 at 11:53PM
I posted a recap of this meeting as a bit of a preview of this. Its here:

the BOJ adopted a cautious stance, indicating that any future rate hikes would be contingent upon increased confidence in economic and price forecasts

A couple of weeks after the meeting the Bank published its ‘summary’, acknowledging it was running scared on yen gyrations:

BOJ Summary (Oct.): Yen’s depreciation has significant effects

In summary from the report:

Market Operations

Maintained the uncollateralized overnight call rate at 0.225–0.228%.

Reduced Japanese Government Bond (JGB) purchases to ¥4.9 trillion per month in October, down from ¥5.3 trillion in September.

Conducted corporate bond purchases as per earlier plans.

Financial Markets

The yen depreciated against the USD and EUR due to rising U.S. interest rates.

Tokyo Stock Price Index (TOPIX) rose slightly, and 10-year JGB yields increased in line with U.S. rates.

Money market rates, including the GC repo rate, were stable near 0.25%.

Global Economy

U.S. economy grew moderately, led by private consumption despite higher interest rates.

European economies showed signs of stabilization but remained weak in parts.

China’s recovery slowed, pressured by the real estate sector and labor market adjustments.

Emerging and commodity-exporting economies saw moderate improvements, driven by IT-related exports.

Japan’s Economic Conditions

Moderate recovery with weak spots; growth expected above potential in the medium term.

Exports and industrial production were flat but anticipated to improve with global IT demand.

Corporate profits and business investment continued on a moderate upward trend.

Private consumption showed resilience, supported by wage increases despite rising prices.

Inflation remained at 2.5%, driven by rising service prices and wages. Underlying inflation expected to rise gradually.

Monetary Policy

The policy interest rate remained at 0.25%.

The Board emphasized a cautious approach to monetary policy amid domestic and global uncertainties.

If inflation trends align with expectations, gradual rate hikes are possible, with a potential path to 1.0% by late fiscal 2025.

Risks and Considerations

High uncertainties around global economic developments, commodity prices, and geopolitical tensions.

Monitoring required for wage-price dynamics, financial market conditions, and external factors like the U.S. presidential election and interest rate trends.

Government Remarks

The government urged continued monetary policy support to achieve stable 2% inflation.

Emphasis was placed on wage-driven economic growth and fiscal measures to counter deflationary pressures.

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The key point is that:

If inflation trends align with expectations, gradual rate hikes are possible, with a potential path to 1.0% by late fiscal 2025

The meeting following this October meeting was the December meeting, where rates were held steady again.

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Full text is here

This article was written by Eamonn Sheridan at www.forexlive.com.