End to negative rate must be tied to success of achieving 2% inflation target

The Bank of Japan (BoJ) Summary of Opinions at the Monetary Policy Meeting on September 21 and 22, 2023, per Reuters.

Key quotes

“said inflation likely to slow ahead”

“said inflation exceeding 2% but this is largely due to firms passing on higher import costs”

“Inflation likely to keep rising next fiscal year due to expected rises in transportation, public service fees”

“said seeing signs that positive cycle rising wages and inflation may be kicking off”

“said there is chance next year’s wage growth may exceed that of this year”

“said given recent fx, oil price moves, there is chance inflation may not slow much and overshoot expectations”

“said no need to make additional tweaks to YCC as long-term rates moving fairly stably”

“said end to YCC, negative rate must be tied to success of achieving 2% inflation target”

“said to sustainably hit price goal, wage gains must become sustained and lead to inflation driven by service prices”

“said there is still some distance but japan nearing achievement of price target, so latter half of current fiscal year will be crucial phase in determining next year’s price outlook, other factors”

“said cannot determine now timing of policy tweak as that will depend largely on economic, price conditions at the time”

“said BOJ’s communication, guidance must be made in a way that does not constrain too much its freedom on timing, order of policy move”

“said it is important to prepare for exit from risk-management perspective as we could have clarity around January – March next year on whether 2% inflation target can be met in sustained, stable fashion”

“said side-effect of YCC remains even after steps in July to make it more flexible”

“said even if BOJ ends negative rate policy, monetary conditions will remain accommodative as long as real interest rates are negative”
 

Market reaction

This headline had little to no impact on the Japanese Yen’s performance against its rivals. As of writing, the USD/JPY pair was up 0.15% on the day at 149.60.