A member of the Bank of Japan’s Board, Hajime Takata, expressed that the central bank should gradually adjust its monetary policy in light of potential inflation risks, even following the anticipated interest rate increase planned for January. Japan continues to experience deeply negative real interest rates, reflecting the ongoing accommodative monetary stance. Takata emphasized that it will be necessary to fine-tune monetary support based on the economic trajectory in alignment with the Bank’s forecasts. However, the Bank must also tread carefully when changing policies due to the unpredictable nature of the US economic situation and the complex assessment of the neutral interest rate, which is crucial for effective monetary policy.
Amidst these economic conditions, Japanese companies are generally optimistic about their investment strategies. There has been a moderate uptick in consumption, which is expected to sustain its growth. Furthermore, long-term inflation expectations are gradually rising. There is widespread anticipation that businesses will implement significant wage increases during the current year’s negotiations. While inflation is projected to approach the Bank’s target due to domestic economic factors, there are concerns that it could escalate beyond expectations, spurred by a weakening yen and substantial wage hikes.
Takata remains optimistic about Japan’s progress toward consistently reaching the Bank’s inflation goals starting in fiscal year 2025, primarily driven by robust wage growth and domestic inflationary dynamics. The perceived risk of significant market volatility has diminished, thereby offering the Bank more flexibility in its policy decisions.
Currently, the USD/JPY currency pair is hovering near intraday lows of around 151.80, reflecting a slight decline of 0.12% for the day in light of these developments.
