Summarising the main points of internset, on inflation and policy:
- Inflation Trends:
- Underlying CPI inflation expected to rise steadily, approaching the 2% target.
- Labour shortages contribute to persistent inflation through a positive output gap.
- Balanced upside and downside risks to prices, with potential stagflation if global trade frictions intensify.
Monetary Policy
Policy Adjustments:
- Support for raising the policy interest rate to 0.5% to ensure stable achievement of the 2% inflation target.
- Interest rate hike considered neutral relative to market expectations.
- Real interest rates to remain negative post-hike, with potential for further increases if conditions persist.
Risks and Considerations:
- Concerns over yen depreciation and potential overheating of financial activities.
- Need to monitor small and medium-sized firms' wage-raising capacity.
- High uncertainties warrant cautious communication on future interest rate hikes.
You'll recall the Bank of Japan hiked rates at this meeting:
