Bank of Japan leaves rates unchanged, as widely expected

Bank of Japan statement, October 31 2024.

• maintains short term interest rate target at 0.25%, as expected, in a unanimous decision

Forecasts for CPI and GDP:

• Board’s core CPI fiscal 2024 median forecast at +2.5% vs +2.5% in JulyBoard’s core CPI fiscal 2025 median forecast at +1.9% vs +2.1% in JulyBoard’s core CPI fiscal 2026 median forecast at +1.9% vs +1.9% in July
• Board’s core-core CPI fiscal 2024 median forecast at +2.0% vs +1.9% in JulyBoard’s core-core CPI fiscal 2025 median forecast at +1.9% vs +1.9% in JulyBoard’s core-core CPI fiscal 2026 median forecast at +2.1% vs +2.1% in July
• Board’s real GDP fiscal 2024 median forecast at +0.6% vs +0.6% in JulyBoard’s real GDP fiscal 2025 median forecast at +1.1% vs +1.0% in JulyBoard’s real GDP fiscal 2026 median forecast at +1.0% vs +1.0% in July

From the quarterly report:

• Given that real interest rates are at very low levels, BOJ will continue to raise policy rate if economy, prices move in line with its forecastWill conduct monetary policy from perspective of sustainably, stably achieving 2% inflation targetJapan’s economy recovering moderately, although some weaknesses are seenUnderlying consumer inflation likely to be at level generally consistent with 2% target in second half of projection period from fiscal 2024 through 2026Underlying consumer inflation likely to increase graduallyUncertainty surrounding Japan’s economy, prices remain highImpact of FX volatility on prices has become larger as firms have become more active in raising prices, wagesRisks to prices skewed to upside for FY 2025Risks to economic outlook generally balancedMust be vigilant to financial, FX market moves and their impact on economy, pricesMust scrutinise U.S., overseas economic developments and market movesMust be vigilant to impact of overseas developments, market moves on Japan’s economic and price outlook, risks and likelihood of achieving our projectionsConsumption rising moderately as a trendInflation expectations rising moderatelyConsumption likely to continue rising moderatelyFinancial conditions remain accommodativeService prices have continued to rise moderately reflecting wage gainsBut effects of pass-through to consumer prices of cost increases have wanedCore core consumer inflation likely to move around 2% as services prices to rise moderatelyMedium- long-term inflation expectations rising moderatelyNominal wages clearly rising, pass-through of rising labour costs on sales prices continue to heightenCycle of rising wages, inflation likely to continue heighteningUncertainty over BOJ’s economic, price outlook remains high

Full text is here

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The Bank of Japan specifically mentioned FX:

• Impact of FX volatility on prices has become larger as firms have become more active in raising prices, wages
• Must be vigilant to financial, FX market moves and their impact on economy, prices

This is not threatening language, and it really doesn’t change the wariness that Japanese authorities have for rapid moves (mainly rapidly weakening yen, of course).

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Background to this is here:

• Bank of Japan Policy Meeting Preview – Don’t Hold Your Breath for a Hike
• Preview – Bank of Japan meeting this week – no change to policy expected
• Japanese Inflation Data Impact on USD/JPY; BoJ Meeting Outlook

Still to come is Bank of Japan Governor Ueda press conference at 0630 GMT, 0230 US Eastern time.

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