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BOJ leaves quick time period at 0.5%, as anticipated

Bank of Japan Statement and Outlook Report

Short term rate left at 0.5%, as expected.

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%

BOJ REPORT:

  • Underlying inflation likely to stall due to slowing growth but gradually accelerate thereafter

  • Underlying consumer inflation likely to be at level generally consistent with 2% target in second half of projection period from fiscal 2025 through 2027

  • Risks to inflation outlook roughly balanced

  • Risks to economic outlook skewed to downside

  • Uncertainty over trade policy and its developments, impact on economic, price outlook remains high

  • Real interest rates are at extremely low levels

  • Must have no pre-conception in judging whether economy, prices moving in line with forecast

  • Will conduct monetary policy as appropriate from perspective of sustainably, stably achieving 2% inflation target

  • There is high uncertainty surrounding trade policy developments and their impact on economy

  • Will continue to raise policy rate if economy, prices move in line with forecast, in accordance with improvements in economy, prices

  • Prolonged period of high uncertainties regarding trade policies could lead firms to focus more on cost cutting

  • As a result, moves to reflect price rises in wages could also weaken

  • Japan’s economy recovering moderately albeit with some weakness

  • Inflation expectations rising moderately

  • Output, exports likely to move on weak note

  • Consumption to resume moderate uptrend

  • Cycle of gradually rising wages, prices to continue

  • Medium-, long-term inflation expectations gradually rising, likely to re-accelerate after a period of stagnation

  • Impact of rising food prices, including rice, likely to dissipate

  • Progress seen in trade policy, including Japan-U.S. trade agreement

  • Uncertainty surrounding each country’s trade negotiation, impact on domestic and overseas economy, prices remain high

  • July quarterly report’s baseline forecast is based on assumption no big disruptions will be caused in global supply chain

  • Will continue to raise policy rate if economy and prices move in line with forecast, in accordance with improvements in economy and prices

  • Prolonged period of high uncertainties regarding trade policies could lead firms to focus more on cost cutting

  • As a result, moves to reflect price rises in wages could also weaken

  • Possible that higher food prices may induce second-round effects on underlying CPI inflation through changes in household sentiment and inflation expectations

  • Trade policies announced so far are likely to push down domestic and overseas economies through various channels

  • Possible that recent moves toward fiscal expansion, particularly in the U.S. and Europe, could push up the global economy

  • 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.

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