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Bank Of Japan Remains Dovish Despite Global Hawkish Policy

Japan trails a different path in its approach to global inflation. Unlike most countries imbibing an aggressive measure, Japan chooses otherwise. It will state its stance on the same day as the FOMC meeting later this week. 

BOJ To Maintain A Low Interest Rate 

Thursday will see the United States and Japan decide their next move towards global inflation. The US Federal Reserve should price in basis points at 100 at its meeting. On the other hand, Japan will hold on to its ultralow rate guidance.

Economists suspect this move could result in a bearish session for the Yen. The gap between FED and BOJ’s policy has dumped the Yen to a twenty-four-year low. Furthermore, it has raised inflation above BOJ’s two percent par for five months until August.

Haruhiko Kuroda, Bank of Japan’s governor, recently declared that inflation would only exist temporarily. Now, Japanese investors are anticipating his comment on the potential decline in Yen. Especially with a spiked cost of importation, they expect him to alter his inflation bias.

Mari Iwashita, a chief market economist at Daiwa Securities, offered his two cents on BOJ’s resolution. He said Yen’s weakness has already triggered an upturn in consumer inflation. Therefore, it will be difficult for BOJ to maintain the notion that inflation is transient.

Bank of Japan is prepared to keep its rate aim at -0.1 percent at the two-day policy meeting wrapping Thursday. Meanwhile, it will set its ten-year government bond yield at 0 percent. Haruhiko will meet with pressmen after the meeting to relay the outcome of their decision. 

Possible Outcomes Of The Meeting

BOJ should finalize its decision hours following the Federal Reserve’s September 20 – 21 meeting. Generally, investors expect the US should hike interest rates by 75 or 100 basis points. Conversely, Japan will maintain a dovish approach, as stated earlier.

Iwashita opined that the USD would continue racing ahead against other currencies. He further stated that Japan’s position would soon attract public attention. And this will happen because the Bank of England and the Federal Reserve are in motion to contract their balance sheets.

Japan’s delicate economic rebound has distinguished its central bank from others. Bank of Japan is now painted a divergent compared to its contemporaries. Meanwhile, this is due to its lax move in contrast to a global flurry of aggressive approaches to taming inflation.

Haruhiko promised not to tighten monetary policy regardless of the impending fall in Yen. 

Furthermore, the BOJ will cancel its covid-19 relief funds in September. It will prepare a document declaring the pandemic risky to the economy. Then, it will establish other means to care for its citizens without hurting its financial goals. 

Sources revealed to Reuters that the Bank of Japan might ignore some core aspects of its guidance. These sections involve increasing incentives to the economy. BOJ’s policy meeting will see a lot of developments in the economic status of Japan.

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