Research Briefing | Jul 21, 2022

BoJ likely to look through widespread price jumps

BoJ likely to look through widespread price jumps

The Bank of Japan left monetary policy unchanged at today’s meeting, maintaining current short- and long-term interest rates as we anticipated. The BoJ’s new strategy of offering daily, unlimited fixed-rate JGB purchases has been defending the +/-0.25% range for 10yr JGB, with lower purchases than previously.

The BoJ’s quarterly Outlook Report revised up the median CPI forecast to 2.3% from 1.9% for FY2022, but estimates for FY2023 at 1.4% and FY2024 at 1.3% remain short of the BoJ’s 2% target.

What you will learn:

  • We share the BoJ’s view that the ongoing price increase is a one-off event driven by a sharp rise in input costs. We don’t forecast sustained inflation without support from demand, which is unlikely amid stagnant wages.
  • Despite the modest overall rate, inflation is unprecedentedly widespread – particularly price rises for daily necessities. This, alongside yen weakening, was a major issue at the upper house election on July 10, although the ruling parties secured a comfortable majority.
  • We still see no incentive for both the Kishida administration and the BoJ to change the current low interest rate policy through the Yield Curve Control framework. The death of former Prime Minister Shinzo Abe is unlikely to change the overall macroeconomic framework in the near future. 

Back to Resource Hub

Related posts

Japan Older households to support spending under higher rates

Post

Japan’s older households to support spending under higher rates

The resilience of consumption is essential to support sustained wage-driven inflation and the Bank of Japan's rate hikes. We see little risk of spending faltering due to the projected gradual rate hikes to 1% because the ageing of society has made households' balance sheets less vulnerable to rate increases.

Find Out More

Post

Japan’s small firms’ profitability will help determine further rate hikes

Rising wage costs have been increasingly squeezing the already low profitability of small firms in Japan, thereby raising concerns about the sustainability of the wage-driven inflation dynamics. The evolution of these dynamics will be key in determining how far the Bank of Japan can raise its policy rate in the coming years

Find Out More

Post

Autos and machineries in Japan are most vulnerable to US tariffs

Our analysis of industry and trade structure between the US and Japan reveals the auto and non-electrical machinery sectors are most vulnerable to tariffs by the US. For both sectors, the US accounts for a sizeable share of total exports as well as gross output, and particularly so for auto.

Find Out More