Pay attention to the Bank of Japan's monetary policy meeting: the future of additional interest rate hikes and government bond purchase reductions
At the monetary policy meeting to be held by the Bank of Japan on 7/31, interest in financial markets is concentrated on plans to increase additional interest rates and reduce government bonds and purchases.
At this meeting, many market participants are watching closely how the Bank of Japan's policy policy will change in the future.
✔️ Possibility of additional interest rate increases
According to a survey of 48 economists, 29% expect the Bank of Japan to implement additional interest rate increases at this meeting. This is due to the fact that rising wages and prices are approaching the Bank of Japan's 2% inflation target. However, in the Japanese economy, where deflationary pressure still remains, interest rate hikes should be carefully examined. Even if interest rate hikes are postponed, there is a high possibility that President Kazuo Ueda will make hawkish statements at the press conference, and it is thought that it will send a signal to the market showing that the Bank of Japan is serious about controlling inflation.
✔️ Reduction plan for purchasing government bonds
The Bank of Japan's government bond purchase program currently operates at around 6 trillion yen per month. However, the market anticipates a plan to first reduce this to 5 trillion yen and then reduce the amount to 3 trillion yen after 2 years. This is a measure to reduce long-term upward pressure on interest rates and improve the profits of financial institutions. The market's reaction is largely dependent on whether the reduction range is as expected. If the reduction range is higher than expected, there is a possibility that the market will respond by incorporating an increase in interest rates, and on the other hand, if the reduction range is smaller than expected, it is conceivable that the depreciation pressure on the yen will intensify.
✔️ Differences in monetary policy between Japan and the US
The status quo is expected to be maintained at the FOMC to be held on the same day. However, there is also a possibility that Chairman Powell will suggest interest rate cuts within a few months, and this will highlight differences in monetary policy between Japan and the US. This difference has an impact on exchange rates, and attention is drawn in particular to the yen exchange rate.
✔️ Prospects and future highlights
The Bank of Japan plans to announce the outlook for new economic and price developments. Attention is being paid to whether the rate of increase in the consumer price index (CPI) will reach the 2% target by 2026. Also, the real GDP growth rate for fiscal 2024 is expected to be revised downward, and the focus is on how this will affect the Bank of Japan's policy decisions. Also, political pressure related to interest rate hikes and monetary policy normalization are factors that cannot be ignored. As shown by Digital Minister Taro Kono and Liberal Democratic Party Secretary General Motegi Toshimitsu, it is being closely watched how pressure from the government affects the Bank of Japan's decisions.
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