The Bank of Japan (BoJ) board members shared their views on the monetary policy outlook on Thursday, per the BoJ Minutes of the March meeting.
Key quotes
Several members believe it was suitable to keep policy rate at 0.75%.
Members express concern over inflation rebound driven by rising oil prices.
Some members say amid heightened uncertainties in Middle East, maintaining policy rate steady was appropriate.
Member says central bank should soon modify deeply negative real interest rate.
One member noted no evidence past rate increases have reduced stimulus impact on economy.
Members agreed central bank should continue raising rates as economy and prices improve.
One member said from next policy meeting onwards, central bank should evaluate in detail whether financial conditions stayed accommodative after previous rate increase.
One member said BOJ should tweak level of monetary easing without long gaps between changes.
Another member said central bank would need to hike rates without hesitation if no signs of major decline in economy or wage-setting of small firms.
Another member said with policy rate still well below neutral, lagging on inflation risks would force BOJ to adopt swift, substantial monetary tightening.
Several members said if supply shocks from Middle East tension are temporary, the core response would be to ‘look through’ their effect.
Members say if shocks persist and raise concern over second-round effects, central bank must respond while assessing impact on core inflation.
One member warned cost-push pressure from elevated oil prices may trigger 1970s-style stagflation with economic stagnation and rising prices.
One member emphasized focus on upside risks to prices.
Member says bank might quicken rate increases if Middle East conflict extends.
One member warns of risk Bank of Japan might unintentionally lag on inflation threats.
One member said central bank should concentrate on tackling elevated prices caused by second-round effects, increase in inflation expectations.
MOF representative expressed concern surge in energy costs may damage economy, urging close market monitoring with utmost vigilance.
Market reaction to the BoJ Minutes
At the time of writing, USD/JPY is up 0.04% on the day at 156.45.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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