Bank of Japan Statement and Outlook Report
Short term rate left at 0.5%, as expected.
- Unanimous vote in favour. No dissenters.
What was also expected were revisions higher to inflation outlooks. Yep, we got that:
- Core CPI fiscal 2025 Median Forecast at +2.7% vs previous +2.2%
- Core CPI fiscal 2026 Median Forecast at +1.8% vs previous +1.7%
- Core CPI fiscal 2027 Median Forecast at +2.0% vs previous +1.9%
- Core-Core CPI fiscal 2025 Median Forecast at +2.8% vs previous +2.3%
- Core-Core CPI fiscal 2026 Median Forecast at +1.9% vs previous +1.8%
- Core-Core CPI fiscal 2027 Median Forecast at +2.0% vs previous +2.0%
Core in Japan is excl food, core-core is excluding food and energy (and the closest to the US measure of core inflation).
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BOJ REPORT:
Underlying inflation likely to stall due to slowing growth but gradually accelerate thereafter
Underlying consumer inflation likely to be at level generally consistent with 2% target in second half of projection period from fiscal 2025 through 2027
Risks to inflation outlook roughly balanced
Risks to economic outlook skewed to downside
Uncertainty over trade policy and its developments, impact on economic, price outlook remains high
Real interest rates are at extremely low levels
Must have no pre-conception in judging whether economy, prices moving in line with forecast
Will conduct monetary policy as appropriate from perspective of sustainably, stably achieving 2% inflation target
There is high uncertainty surrounding trade policy developments and their impact on economy
Will continue to raise policy rate if economy, prices move in line with forecast, in accordance with improvements in economy, prices
Prolonged period of high uncertainties regarding trade policies could lead firms to focus more on cost cutting
As a result, moves to reflect price rises in wages could also weaken
Japan's economy recovering moderately albeit with some weakness
Inflation expectations rising moderately
Output, exports likely to move on weak note
Consumption to resume moderate uptrend
Cycle of gradually rising wages, prices to continue
Medium-, long-term inflation expectations gradually rising, likely to re-accelerate after a period of stagnation
Impact of rising food prices, including rice, likely to dissipate
Progress seen in trade policy, including Japan-U.S. trade agreement
Uncertainty surrounding each country's trade negotiation, impact on domestic and overseas economy, prices remain high
July quarterly report's baseline forecast is based on assumption no big disruptions will be caused in global supply chain
Will continue to raise policy rate if economy and prices move in line with forecast, in accordance with improvements in economy and prices
Prolonged period of high uncertainties regarding trade policies could lead firms to focus more on cost cutting
As a result, moves to reflect price rises in wages could also weaken
Possible that higher food prices may induce second-round effects on underlying CPI inflation through changes in household sentiment and inflation expectations
Trade policies announced so far are likely to push down domestic and overseas economies through various channels
Possible that recent moves toward fiscal expansion, particularly in the U.S. and Europe, could push up the global economy
Trade policies announced so far could trigger a change in the globalisation trend
The Bank of Japan appears, from all this lot, to be on track to hike rates further still. Timing remains in question. End 2025 / early 2026 still seems to be the ballpark.
