Bank of Japan Announces Several Policy Changes – Currency Thoughts
Bank of Japan Announces Several Policy Changes
July 31, 2024
Just four months ago, the BOJ made a baby step toward normalizing its ultra-loose monetary policy, ending the negative 0.1% short-term interest rate that had prevailed since January 2016, lifting such to 0.0-0.1%.
By a 7-2 margin with two dissents in favor of another baby step, the short-term call rate was raised to 0.25%, as a released statement acknowledged that
Services prices have continued to rise moderately, with a strengthening of moves to reflect wage increases in selling prices. Inflation expectations of firms and households have risen moderately. The year-on-year rate of change in import prices has turned positive again, and upside risks to prices require attention. If the outlook for economic activity and prices presented in the July Outlook Report will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation.
Moreover, officials gave details of a program to reduced the central bank balance sheet, halving the amount of government bond purchases per month from JPY 5.7 trillion to JPY 2.9 trillion by early 2026. To make the process fully predictable, a schedule of quarterly cutbacks is laid out.
Finally, updated macroeconomic forecasts reported in the quarterly Outlook document projects real GDP expanding 0.6% in fiscal 2024, and 1.0% each in the following two years. Although low, this pace nonetheless exceeds the rise in potential GDP, resulting in a further restoration of a positive output gap that will hopefully lead to a virtuous wage-price growth cycle that restores the 2% core inflation target on a sustainable basis. Total consumer price inflation decelerates from 2.5% in fiscal 2024 to 2.1% in fiscal 2025 and 1.0% in fiscal 2026. Excluding energy as well as fresh food items, the CPI sequence holds at 1.9% in both fiscal 2024 and fiscal 2025 before settling at 1.9% in fiscal 2026.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan
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