The Bank of Japan (BoJ) has published a sentiment summary from its December monetary policy meeting, with the key findings listed below.
Key quotes
One member said that although the interest rate will remain very negative, the Bank of Japan should carefully monitor the impact of raising the interest rate on the economy and markets.
One member said the Bank of Japan should increase interest rates steadily to avoid falling behind the curve.
One member said the Bank of Japan should scrutinize economic, price and financial developments when adjusting the tone of monetary policy rather than keeping a specific pace in mind.
One member said that Japan’s real interest rate is the lowest in the world, so it is appropriate to raise it taking into account the impact on inflation through the foreign exchange market.
One member said that maintaining real rates at levels other than equilibrium could cause distortions in the distribution of resources and affect sustainable growth.
One member said the government’s stimulus package could support economic growth over the next year or two.
One member said real wages were likely to turn positive in the first half of next year.
A Cabinet Office representative acknowledged that the BOJ’s decision aims to achieve the target rate consistently, although it should be alert to developments in capital spending and corporate earnings.
The Cabinet Office representative said he hopes the Bank of Japan will guide appropriate policy in accordance with the Bank of Japan Law, said the joint statement between the government and the Bank of Japan.
Market reaction
Following the Bank of Japan’s opinion summary, the USD/JPY pair fell by 0.28% on the day to trade at 156.06 as of writing.
This section was published on 28 December at 22.37 GMT as a preview of the release of the Bank of Japan’s Views Summary.
Bank of Japan sentiment preview summary
The Bank of Japan (BOJ) will publish its report on Sunday at 23:50 GMT. This report includes the Bank of Japan’s expectations for inflation and economic growth. It is scheduled 8 times a year, approximately 10 days after the monetary policy statement.
How could the Bank of Japan’s opinion summary affect USD/JPY?
The USD/JPY pair is trading flat on the day in the run-up to the Bank of Japan’s opinion summary. However, the possibility that the new Chairman of the Federal Reserve (Fed) to replace Jerome Powell will look to cut interest rates next year could weigh on the US dollar (USD) against the Japanese yen (JPY).
The first bullish barrier for USD/JPY is at the December 9 high of 156.95. The next resistance level appears at the December 22 high of 157.70, on its way to the November 20 high of 157.89.
On the downside, the December 26 low at 155.96 will provide some relief to buyers. Extended losses could see a drop to the December 19 low of 155.44. The next competition level is at the lowest level recorded on December 17 at 154.51.
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most widely traded currencies in the world. Their value is determined broadly by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the spread between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the powers of the Bank of Japan is to control the currency, so its movements are key to the yen. The Bank of Japan has intervened directly in currency markets on occasion, generally to devalue the yen, although it often refrains from doing so due to the political concerns of its major trading partners. The Bank of Japan’s ultra-loose monetary policy between 2013 and 2024 caused the yen to depreciate against its major counterparts due to the growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual dismantling of this ultra-lenient policy has given the yen some support.
Over the past decade, the Bank of Japan’s ultra-loose monetary policy stance has led to widening policy divergence with other central banks, especially the US Federal Reserve. This supported the widening of the spread between the US and Japanese 10-year bonds, which favored the US dollar against the Japanese yen. The Bank of Japan’s decision in 2024 to gradually abandon ultra-loose policy, along with interest rate cuts at other major central banks, are narrowing this spread.
The Japanese yen is often viewed as a safe investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency because of its supposed reliability and stability. Turbulent times are likely to strengthen the value of the yen against other currencies that are considered riskier to invest in.
