FX.co ★ BoJ Flags Rate Rise to Anchor Stability: Dec Policy Summary

According to the December meeting's Summary of Opinions, the Bank of Japan should consider raising interest rates and adjusting the extent of its monetary accommodation to sustainably achieve price stability. Policymakers expressed confidence that Japan could maintain a virtuous cycle where wages and prices increase moderately, bolstering the economic outlook for growth and inflation. Robust corporate profits were deemed supportive of wage increases, while ongoing inflationary pressures, especially those influenced by currency effects, are anticipated under the current financial conditions. Some board members highlighted that postponing action until the next meeting could entail significant risks since real interest rates are currently well below equilibrium. They cautioned that a prolonged departure from equilibrium could lead to distorted resource allocation and hinder growth. With current conditions considered to be excessively loose in relation to economic fundamentals, a case was made for a 0.25% rate hike, underscoring that Japan’s real policy rate is "by far the lowest globally."