BoJ January meeting summary – one member cited upside inflation risk

Summarising the main points of internset, on inflation and policy:

• Inflation Trends:
  • Underlying CPI inflation expected to rise steadily, approaching the 2% target.
  • Labour shortages contribute to persistent inflation through a positive output gap.
  • Balanced upside and downside risks to prices, with potential stagflation if global trade frictions intensify.

Monetary Policy

• Policy Adjustments:

  • Support for raising the policy interest rate to 0.5% to ensure stable achievement of the 2% inflation target.
  • Interest rate hike considered neutral relative to market expectations.
  • Real interest rates to remain negative post-hike, with potential for further increases if conditions persist.

• Risks and Considerations:

  • Concerns over yen depreciation and potential overheating of financial activities.
  • Need to monitor small and medium-sized firms’ wage-raising capacity.
  • High uncertainties warrant cautious communication on future interest rate hikes.

You’ll recall the Bank of Japan hiked rates at this meeting:

• ForexLive Asia-Pacific FX news wrap: USD slammed by Trump, then by the BoJ rate hike
• ForexLive European FX news wrap: Dollar stays pressured, yen slips in post-BOJ trade

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