Bank of Japan Takes a Step Closer to Reducing Quantitative Stimulus – Currency Thoughts

Bank of Japan Takes a Step Closer to Reducing Quantitative Stimulus

June 14, 2024

While not raising its short-term interest rate additionally, the Board agreed by an 8-1 margin to begin lessening monthly asset purchases beginning after its next meeting in July and to give market forces a greater influence in determining Japanese long-term interest rate movements. The short-term interest rate of -0.1% since January 2016 had been increased by the Board in March to 0.0-0.1% and was not expected to be lifted further at this time. Meantime, the BOJ has continued to buy around JPY 6 trillion of JGB bonds per month, limiting upside pressure on long-term interest rates but also bloating the bank’s balance sheet. Details of how quantitative monetary policy will be lessened will be revealed after the Board next policy review.

The released Bank of Japan statement is reasonably upbeat about Japan’s economic outlook, citing the resilience shown by consumer spending as well as improving corporate profits and confidence, and it projects “medium- to long-term inflation expectations
will rise with a virtuous cycle between wages and prices continuing to intensify.” All in all, confidence has risen among bank officials that 2-2.5% CPI inflation will ensue.

Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Bank of Japan

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