Bank of Japan
Fiscal and monetary policymakers in Tokyo face broad challenges as markets await the outcome of the Bank of Japan’s meeting before the end of the month and the direction it may take in a direction that may diverge from Japan’s accommodative policy. In view of the sharp depreciation of the yen and the enormous pressure it brings.
This is in line with foreign fund managers who have been dubbed “widow makers” for the past two decades by short selling Japanese government bonds, bets that have often backfired and failed, in the hope that Japan will not do so for its bonds Putting pressure on, eventually had to raise interest rates.
Speculation that the central bank will tweak its ultra-loose policy and abandon efforts to keep bond yields near zero sent Japan’s 10-year government bond yield on Friday to its highest level in 4-1/2 months.
Influencing factors
However, contrary to these estimates, economist Dr Ali Al-Idrisi does not think the Bank of Japan will abandon its easing policy, citing a number of main factors, not the least of which is the slow pace. The possibility of interest rate hikes in major economies is high, especially as the Federal Reserve has justified interest rate hike expectations at its last meeting, and the slowdown in inflation will encourage its tendency to abandon the monetary tightening policies it has adopted. The upcoming meeting this month Might see rates fixed for the second time in a row.
“The Fed’s trend affects central banks and the global economy,” he added, while noting that “while the BOJ follows an accommodative policy, it is at a time when it is moving in that direction, contrary to the trend of other central banks (monetary tightening), It is unlikely to change policy.” Given current inflation data, the bank itself expects a gradual decline in the next phase as rates peak Except perhaps.
The Bank of Japan kept interest rates unchanged at its last meeting in June, maintaining an accommodative monetary policy. It said it fixed short-term interest rates at -0.1%, as expected, and made no changes to yield curve control, in line with officials’ view that inflation will slow in the coming months.
Earlier, Japanese Finance Minister Shunichi Suzuki pledged to take appropriate measures in the face of excessive yen weakness, which was seen as a sign that Japanese authorities may intervene to support the yen.
Corum Research: BOJ intervention needed to stop yen fall
At the same time, he does not think the pressure on the yen will prompt the central bank to reverse policy, noting that inflation is significantly lower than that in the United States, which is a factor supporting the Bank of Japan. In any case, the BOJ’s instructions, especially given the enormous potential of the Japanese economy, qualify it to weather this crisis, which is clearly linked to global economic stress.
- Core consumer prices in the Japanese capital rose 3.2% year-on-year last month after rising 3.1% in May, official data showed.
- Inflation exceeded the Bank of Japan’s 2% target in June (13th consecutive month).
- Separate data showed factory output fell more than expected in May, reflecting risks to the export-reliant economy and the impact on global demand.
fed meeting
“It’s going to be hard for the BOJ to decide to change monetary policy before the Fed’s decision,” said Mazen Salhab, chief market strategist for the Middle East and North Africa at BDSwiss.
The Federal Reserve will meet on July 25-26, and the Bank of Japan will hold its next monetary policy meeting on July 27-28.
While he said “if the yen continues to fall, if inflation continues to rise, the BOJ will be forced to intervene (..)”, he stressed that the bank “will not risk dragging the country into recession by raising rates… maybe It is in Japan’s interest.” Literally keeping the yen weak for the time being and keeping monetary policy accommodative. “
The yen/dollar exchange rate is currently hovering around the key 145 level, which called for Japanese authorities to intervene last September. One dollar currently converts to about 139 yen.
trade balance
Economist Bilal Shuaib explained in an exclusive statement to Arab Economic Sky News that the situation in Japan’s economy is relatively different, especially as it faces a number of challenges in addition to economic pressure-related challenges. A series of special challenges. Recent developments such as the conflict between Russia and Ukraine.
He added, “Tokyo is highly dependent on industry, while importing a large amount of primary economic resources to run industry, and there is relative convergence between total imports and total exports,” referring to the impact of the industrial sector on industry. The country relies on a wide range of external influences and their impact on high inflation rates around the world.
The economist highlighted that Japan faces broad challenges related to the global crisis, such as rising raw material prices, as well as last year’s oil price, which at one point reached more than $115 a barrel, and rising commodity prices. Prices, including wheat, exceeded their prices in some periods (500 USD per ton, higher transport costs, etc.).
Although Japan’s industrial sector faces particular challenges this year, official figures for 2022 released by Japan’s Ministry of Finance show that:
- Imports soared 39.2 percent to a record high of 118.16 trillion yen ($918.74 billion), driven by higher import prices for crude oil, coal and liquefied natural gas.
- Exports rose 18.2 percent to 98.19 trillion yen ($763.47 billion), also a record high, supported by growth in auto and steel exports.
Alongside these pressures, Tokyo faces internal challenges such as a shrinking, aging population and labor shortages, not to mention public debt that has reached around 250 percent of output, Shoaib said.
However, despite these challenges, the BOJ has continued to implement accommodative policies to stimulate markets, take advantage of the various components of the Japanese economy and its ability to pay for any external burden, especially given that inflation is high at 3.2%, close to 2%. target, so “inflation remains within the safe margins of major countries”.
“Inflation in Japan hit its highest level in about 40 years at the start of the year at 4.2 percent, and it was at 4 percent in December before falling to 3.2 percent, a qualitative stabilization in recent months,” he added. This has happened in the past, so while the BoJ is considering reversing policy, he has had to withdraw them strongly ahead of time, and now that inflation is stable and down from record highs, he is unlikely to roll back his policy despite the pressure .
He added, “The yen is indeed in a worrying position, but we’re talking about an economy that relies on industry and balances imports and exports. What’s happening now is an episodic situation that won’t last long, And I don’t think Japan’s monetary policy makers will change policy and tighten policy on credit and interest rates.
Inflation in Japan.. and affected Japanese life