• Yomiuri Editorial

BOJ Monetary Policy: Central Bank Must Not Send Signals That Invite Confusion

There are growing expectations that the Bank of Japan will change its massive monetary easing policy in the near future. It can be said that the central bank has entered a phase in which its ability to handle monetary policy and provide appropriate explanations to financial markets will be tested.

At its monetary policy meeting, the BOJ decided to continue its monetary easing measures, guiding the short-term interest rate to minus 0.1% and the long-term interest rate to around 0%.

The decision at this meeting drew particular attention because there has been speculation that the negative interest rate policy would be lifted at an early stage in light of BOJ Gov. Kazuo Ueda’s statement in the Diet on Dec. 7 that the central bank would face a “more challenging situation from the end of the year through next year.”

At a later press conference, Ueda said that this statement was in response to a question about his attitude toward his work, and that he did not intend to suggest any change in monetary policy, saying, “I meant that I would roll up my sleeves and carry out my duties.”

At the press conference, Ueda made no mention of the timing for lifting the negative interest rates, apparently giving the market the impression that its expectations for a BOJ policy change would not be met. Statements by the BOJ governor have an extremely large impact. Therefore, it is hoped that the central bank will thoroughly disseminate information so as not to cause misunderstandings.

The U.S. Federal Reserve Board, which has been raising interest rates rapidly, is likely to change to lowering interest rates next year. Already, the yen has appreciated against the U.S. dollar due to speculation that the interest rate gap between Japan and the United States will narrow.

If the BOJ begins to tighten its monetary policy while the Fed is cutting interest rates, there is a risk of excessive fluctuations in the foreign exchange rates. As the BOJ prepares to change its policy, it will be necessary to closely monitor market movements and take care to avoid any confusion.

Ueda explained that the reason for maintaining monetary easing at this time is that stable price increases accompanied by wage hikes by firms cannot yet be sufficiently predicted.

On the other hand, he also noted that the probability of achieving the 2% inflation target is “gradually increasing.”

Rising prices to date have been mainly due to price hikes in energy and other imports. However, currently, service prices are rising as they are susceptible to the influence of wage hikes.

The Japanese Trade Union Confederation (Rengo) has decided to call for a wage increase of “5% or more” in next year’s shunto spring labor wage negotiations, a stronger expression than this year’s “around 5%” demand. Many companies, especially large ones, are positive about raising wages substantially due to labor shortages.

The focus will be on whether such a move will spread to small and midsize enterprises as well. It is hoped that the central bank, in cooperation with the government, will carefully examine trends in wages, prices and the economy, and cautiously seek the right timing for policy changes.

(From The Yomiuri Shimbun, Dec. 21, 2023)