The Bank of Japan is forced to raise interest rates amid internal and external difficulties
2024-08-07
한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina
(The authors of this article are Song Xuetao, Chief Economist of Tianfeng Securities; Zhong Tian, Macro Researcher of Tianfeng Securities)
In the short term, the Bank of Japan chose to raise interest rates by 15bp instead of 10bp, which may have exhausted the policy space for the whole year of 2024, which can be seen as the landing of bad news.
Although Japan's economic outlook conveysWeaker growth(2024 growth rate lowered from 0.8% to 0.6%) andLower inflation(Core inflation in 2024 is revised down from 2.8% to 2.5%), butBank of Japan raises interest rates15bp, raising the short-term interest rate to around 0.25%.
At the same time, it will gradually reduce the scale of its bond purchases by 400 billion yen per quarter, with the goal of reducing it to 2.9 trillion yen in the first quarter of 2026, a drop of half from the current level.
At present, Japan's overall CPI and core CPI excluding energy haveInflation has exceeded the 2% target for 27 consecutive months, prices are obviously the basis for the Bank of Japan's decision to raise interest rates.
The reason behind the rise in Japanese prices is the slow recovery of domestic consumption and the impact of the depreciation of the yen. Especially in the case of the recent depreciation of the yen, the year-on-year growth rate of Japanese import prices has rebounded significantly, which has broughtImported inflation pressureThis is also the motivation for the Bank of Japan to raise interest rates.
But Japanese residentsReal wage growth has been negative for 26 consecutive monthsBehind the growth of basic salary is the low growth of other income categories (bonuses, overtime pay, etc.). If the growth rate of basic salary is driven by the increase, it will take at least one quarter for the actual income growth rate of Japanese residents to turn positive.
In terms of timing, the Bank of Japan choseEarly rate hike。
Internally, it is political pressureThe Bank of Japan needs to intervene in the yen, which has been weakening since March. The Bank of Japan's intervention in the yen's depreciation at the end of April was not successful. The yen-dollar exchange rate once rose to 161.7 in early July, a new low since June 1986. The depreciation of the exchange rate has increased the political pressure on the Bank of Japan. Recently, many officials of the Liberal Democratic Party of Japan have frequently and directly expressed their "expectations" for the Bank of Japan to raise interest rates.
This year, the Bank of Japan is also facingA political agenda similar to the Fed’sThe Liberal Democratic Party of Japan will hold a new election in September, and the newly elected party leader will become the Prime Minister of Japan. As the current situation is still unclear, the Bank of Japan has also avoided taking action too late to intervene in the actual "Japanese general election."
Externally, it is to avoid the Federal Reserve’s “possible” interest rate cut window.Considering that the current market has fully taken into account the Fed's expectation of a rate cut in September, if the Bank of Japan raises interest rates again at its meeting at the end of October, it will appear overly hawkish.
The Bank of Japan also needs to some extentAvoid a collision with the US electionEven if the spillover effect of the Japanese economy on the United States is not that strong, if it waits until September or October to take action, it will inevitably have an impact on capital flows. The Bank of Japan has always presented itself as a weak dovish, and the posture of being forced to act also prompted it to act first.
What the Bank of Japan wants is not a strong yen, but'Not so weak'The Bank of Japan does not want to turn hawkish, but“Not so dove”That's it.
It is worth noting that at the press conference, Ueda’s statement did notThere is no clear hawkish tendency.
He is quite positive about domestic demand, believing that although actual demand is declining (personal consumption has contracted quarter-on-quarter for four consecutive quarters), he still expects it to recover slowly led by wage growth.
More importantly, he emphasized that 0.5% is not a particular rate limit, which means that the current round of interest rate hikes by the Bank of Japan will be longer.
At the same time, it also said that in the face of potential downward pressure on prices, it would cut interest rates or even return to unconventional monetary policies. This can be seen as the Bank of Japan still has a high degree of uncertainty about the future direction of the economy.
In the short term, the Bank of Japan's choice to raise interest rates by 15bp instead of 10bp may have exhausted the policy space for the whole year, which can be seen as a negative shoe falling. Considering that the Bank of Japan has lowered its expectations for economic growth and inflation levels this year, although Ueda said that further actions this year will be data-dependent and retain the possibility of raising interest rates, there is no basis for it at present.
risk warning
Japan's domestic demand recovery exceeded expectations, the yen appreciated more than expected, and the Bank of Japan's rate hike pace exceeded expectations
(This article only represents the author’s personal views)
