The Bank of Japan recently held a two-day monetary policy meeting, and the meeting decided to keep the policy interest rate unchanged for the fifth consecutive time. Relevant analysts believe that the US economic prospects and monetary policy are still to be seen, the impact of the US tariff measures on Japan’s economy has not yet been fully reflected, and the uncertainty of Japan’s domestic political prospects still exists, etc., all of which have become reasons for the Bank of Japan to remain silent and further evaluate the feasibility of interest rate hikes. At present, there are many different opinions on the market and economics community’s predictions on whether the Bank of Japan will raise interest rates in October. Affected by changes in the domestic and international situation, the Bank of Japan’s monetary policy is still unclear.
At this monetary policy meeting, the Bank of Japan finally decided to maintain the policy interest rate at around 0.5%, and will sell its assets such as trading open-end index funds (ETFs) and real estate investment trust funds (REITs) at the right time. The specific plan is to sell ETFs with a book value of about 330 billion yen and REITs with a book value of about 5 billion yen each year. According to Japanese media reports, the current ETF market with a book value of 330 billion yen is worth about 620 billion yen. As of the end of March this year, the book value of the ETFs held by the Bank of Japan totaled 37 trillion yen, and the market value was about 70 trillion yen. Analysts believe that this is a means by the Bank of Japan to reduce the scale of easing and promote the gradual normalization of monetary policy.
It is worth noting that at this monetary policy meeting, the decision to maintain the policy interest rate unchanged was not passed unanimously. Two members proposed a proposal to raise the interest rate to 0.75%, citing that the “price stability target” has been basically achieved and inflation risks have continued to rise, but the proposal was rejected by a majority vote. Despite this, there are still opinions on the market that some members proposed a rate hike proposal, which is a sign that the Bank of Japan will take a rate hike action. At the press conference, Bank of Japan Governor Kazuo Ueda also clarified the general direction of the central bank’s continued interest rate hikes. He said that if the economic and price outlook improves, the Bank of Japan will raise policy interest rates and adjust the level of monetary easing based on the economic and price conditions.
At the same time, Kazuo Ueda also believes that the impact of the US tariff increase is a key factor in determining whether Japan will raise interest rates. In fact, the implementation of the US tariff measures has led to a sharp increase in its import prices. When this upward trend is transmitted to consumers, it will inhibit personal consumption and thus have a substantial impact on economic growth. Some economists pointed out that the recent decline in U.S. labor market indicators have confirmed the negative impact of U.S. government tariffs, immigration restrictions and federal employee layoffs on the economy. When the US economy enters a stage of comprehensive adjustment, the Japanese economy will also fall into recession, and wage levels and prices will face declines. In addition, with the Japanese-US tariff negotiation agreement reached, the tariffs for Japanese automobiles to be exported to the United States were finally determined to be 15%. However, it will take some time to assess the impact of the implementation of the new tariffs on Japanese companies. The Bank of Japan and market participants believe that it is necessary to wait until the Bank of Japan’s short-term investigation results are released in September before making a judgment. There are also opinions that since it is difficult to determine the trend of corporate capital investment and wage growth next year in October, restarting interest rate hikes may have to wait until next year. In addition, some industry insiders also said that the Federal Reserve’s monetary policy will become an important reference factor for the Bank of Japan’s decision-making. Before the Bank of Japan’s monetary policy meeting was held, the Federal Reserve decided to cut interest rates, and due to the significant trend of US political intervention, it will continue to cut interest rates in the future, which may lead to a situation where the US dollar depreciates rapidly and the Japanese yen appreciates rapidly. This will hinder the Bank of Japan’s rate hike process.
From the perspective of inflation level, in August this year, Japan’s core consumer price index (CPI) after removing fresh food rose 2.7% year-on-year, down from 3.1% last month, and the increase dropped below 3% for the first time since November last year, which is related to the Japanese government’s implementation of summer electricity and gas subsidies. However, rising food prices are still the main reason for the rise in Japan’s prices. However, some analysts believe that the rise in food prices is caused by temporary factors on the supply side, such as the rise in rice prices, the depreciation of the yen, and the rise in imported food prices, and the rise in raw material prices. The rise in Japan’s price will slow down from the second half of this year, which also brings uncertain factors to the Bank of Japan’s interest rate hike process.
