BoJ December 2024 Summary of Opinions – ‘Gradual increase in CPI’

Bank of Japan ‘Summary of Opinions’, in brief

I. Economic and Financial Developments

• Japan’s Economy:

  • Moderate recovery with some weakness; expected to grow above potential rate due to a virtuous income-to-spending cycle.
  • Wage and price dynamics show positive signs but need further examination, especially in next year’s wage negotiations.
  • Consumer attitudes toward price increases remain cautious, delaying the impact of wage hikes on consumption and services prices.

• U.S. Economy:

  • Solid but uncertain due to incoming administration’s policies.
  • Risks of both acceleration and market fluctuations; upside risks are now more prominent.
  • Policy shifts may affect inflation, interest rates, and exchange rates, with potential for a stronger or weaker U.S. dollar.

• Global Financial Markets:

  • Stable overall; yen remains weak.
  • Misalignments in exchange rates could pose future risks.

• Inflation and Prices:

  • Gradual increase in CPI with inflation expectations stable.
  • Underlying inflation consistent with the 2% target by late 2024.
  • Price rises driven by higher service and food prices but not at an accelerating pace.

II. Monetary Policy

• Current Stance:

  • Maintain monetary policy while monitoring wage growth, private consumption, and U.S. economic policies.
  • Upside risks to prices do not yet warrant immediate interest rate hikes.

• Future Adjustments:

  • Gradual adjustments expected based on data, with a focus on economic and price developments.
  • Interest rate hikes anticipated as inflation and wages align with targets, but patience is required due to global uncertainties.

• Risks and Considerations:

  • Uncertainty over global economies, especially in Europe and China, alongside U.S. fiscal policy.
  • Bank aims to balance inflation control with economic stability.

III. Opinions from Government Representatives

• Ministry of Finance:

  • Policies aim to create conditions for wage growth to outpace inflation, transitioning to a growth-driven economy.
  • Bank of Japan expected to align monetary policy with government goals and ensure effective communication with markets.

• Cabinet Office:

  • Recognizes moderate recovery in Japan’s economy but highlights overseas risks.
  • Focus on swift policy implementation to shift from cost-cutting to growth-oriented strategies.

These are not giving much away re the path of rate hikes to come. I’d suggest today’s CPI data (from Tokyo only, admittedly) keeps expectations of a January 2025 Bank of Japan rate hike on the simmer (see below for data). The January meeting is on the 23rd and 24th.

Earlier from Japan, rising inflation indications:

• Tokyo area December inflation data: Headline 3.0% y/y (expected 2.9%)

Output not so hot, but expected to improve ahead:

• Japan Industrial Production for November (preliminary): -2.3% m/m (expected -3.4%)

Retail sales encouraging with a solid beat:

• Japan Retail sales for November: +2.8% y/y (expected +1.6%)

Labour market unchanged:

• Japan data: October Unemployment rate 2.5% (expected 2.5%)

***

“Summary of Opinions at the Monetary Policy Meeting” is made through the following process:

1. each
   Policy Board member and government representative makes a summary of opinions that she/he presented
   at the Monetary Policy Meeting (MPM) under a certain word limit and submits this to the Governor of the
   Bank of Japan, who serves as the chairman of the MPM, and
2. the chairman edits those opinions as his
   responsibility.

As posted earlier in explanation.

The Bank of Japan (BOJ) releases a “Summary of Opinions” after each monetary policy meeting. It serves as a record of the discussion and views of the Policy Board members on various economic and financial issues. Today’s Summary is for the December 18-19 meeting.

Key points about the Summary:

• The summary includes the views of the Policy Board members on economic conditions, both domestically and globally. This includes assessments of economic growth, inflation, and employment trends, among other indicators.
• The summary also outlines the Policy Board members’ views on the effectiveness of the BOJ’s current monetary policy measures, including interest rate policy, asset purchases, and yield curve control. Members may discuss the pros and cons of these policies and their potential impact on the economy.
• The summary includes discussions on the outlook for monetary policy and the potential risks to the economy. Board members may express their views on the appropriate timing and direction of future policy changes, as well as the potential impact of external factors such as global economic conditions.
• The summary also includes any dissenting views among the Policy Board members. If a member disagrees with the majority view on a particular issue, they may express their own opinion and rationale.

In a few week’s time (January 29, 2025) we’ll get the Minutes of this meeting. The Minutes are a more detailed record of the discussions and decisions made during the meeting.

• The Minutes include a more complete record of the views expressed, including any dissents or alternative opinions that may not be included in the summary.
• The Summary of Opinions is typically released a few days after the policy meeting, while the Minutes are published about a month later. This means that the Summary of Opinions can provide more up-to-date information on the BOJ’s current stance and view on the economy and monetary policy.
• The Summary of Opinions is usually written in a more accessible language, making it easier to understand the BOJ’s views on monetary policy.
• The Minutes, on the other hand, are often more technical and may require a deeper understanding of economics and financial markets.
• The Summary of Opinions is typically shorter than the Minutes.

This article was written by Eamonn Sheridan at www.forexlive.com.