BOJ on Alert! Fragile Yen Could Trigger a Faster Hike
The Bank of Japan (BOJ) is reportedly paying increasing attention to the yen's movements as one of the next "triggers" of inflation. After likely holding interest rates at its meeting next week, a weaker yen is considered to accelerate the BOJ's move to raise interest rates again at subsequent meetings.
Sources familiar with internal discussions said BOJ officials see the impact of the weak yen becoming increasingly felt as Japanese companies are increasingly willing to pass on rising input costs to selling prices. This means that yen depreciation is not just a matter of the exchange rate, but is starting to become a direct channel that pushes price pressures on the consumer level.
Although the BOJ only raised its benchmark interest rate last month and has not yet locked in a "fixed schedule" for the next hike, the continued weakness of the yen is said to be causing the central bank to move more quickly than market expectations. The consensus among private economists has been that the BOJ will raise interest rates approximately every six months, which places the next rate around the summer.
The BOJ is scheduled to announce its policy decision on January 23, and the current view is that the interest rate will be maintained at 0.75%, its highest level in decades. However, the final decision is said to still depend on developments in economic data and market dynamics leading up to the policy meeting.
Going forward, the BoJ's focus will not only be on headline inflation, but also on core inflation and price expectations from households and businesses—especially as Japan's inflation trend is moving closer to its 2% target. Several officials believe the BoJ still has room to continue normalizing interest rates, with an emphasis on timing to avoid a late response—especially if the negative impact of a weak yen on the economy intensifies.
Source: Newsmaker.id
