Bank of Japan Statement and Outlook Report
Short term rate left at 0.5%, as expected.
- Unanimous vote in favour. No dissenters.
What was also expected were revisions higher to inflation outlooks. Yep, we got that:
- Core CPI fiscal 2025 Median Forecast at +2.7% vs previous +2.2%
- Core CPI fiscal 2026 Median Forecast at +1.8% vs previous +1.7%
- Core CPI fiscal 2027 Median Forecast at +2.0% vs previous +1.9%
- Core-Core CPI fiscal 2025 Median Forecast at +2.8% vs previous +2.3%
- Core-Core CPI fiscal 2026 Median Forecast at +1.9% vs previous +1.8%
- Core-Core CPI fiscal 2027 Median Forecast at +2.0% vs previous +2.0%
Core in Japan is excl food, core-core is excluding food and energy (and the closest to the US measure of core inflation).
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BOJ REPORT:
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Underlying inflation likely to stall due to slowing growth but gradually accelerate thereafter
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Underlying consumer inflation likely to be at level generally consistent with 2% target in second half of projection period from fiscal 2025 through 2027
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Risks to inflation outlook roughly balanced
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Risks to economic outlook skewed to downside
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Uncertainty over trade policy and its developments, impact on economic, price outlook remains high
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Real interest rates are at extremely low levels
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Must have no pre-conception in judging whether economy, prices moving in line with forecast
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Will conduct monetary policy as appropriate from perspective of sustainably, stably achieving 2% inflation target
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There is high uncertainty surrounding trade policy developments and their impact on economy
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Will continue to raise policy rate if economy, prices move in line with forecast, in accordance with improvements in economy, prices
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Prolonged period of high uncertainties regarding trade policies could lead firms to focus more on cost cutting
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As a result, moves to reflect price rises in wages could also weaken
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Japan’s economy recovering moderately albeit with some weakness
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Inflation expectations rising moderately
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Output, exports likely to move on weak note
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Consumption to resume moderate uptrend
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Cycle of gradually rising wages, prices to continue
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Medium-, long-term inflation expectations gradually rising, likely to re-accelerate after a period of stagnation
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Impact of rising food prices, including rice, likely to dissipate
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Progress seen in trade policy, including Japan-U.S. trade agreement
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Uncertainty surrounding each country’s trade negotiation, impact on domestic and overseas economy, prices remain high
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July quarterly report’s baseline forecast is based on assumption no big disruptions will be caused in global supply chain
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Will continue to raise policy rate if economy and prices move in line with forecast, in accordance with improvements in economy and prices
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Prolonged period of high uncertainties regarding trade policies could lead firms to focus more on cost cutting
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As a result, moves to reflect price rises in wages could also weaken
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Possible that higher food prices may induce second-round effects on underlying CPI inflation through changes in household sentiment and inflation expectations
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Trade policies announced so far are likely to push down domestic and overseas economies through various channels
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Possible that recent moves toward fiscal expansion, particularly in the U.S. and Europe, could push up the global economy
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Trade policies announced so far could trigger a change in the globalisation trend
The Bank of Japan appears, from all this lot, to be on track to hike rates further still. Timing remains in question. End 2025 / early 2026 still seems to be the ballpark.
This article was written by Eamonn Sheridan at investinglive.com.
