On September 20, 2024, the Bank of Japan (BOJ) released its Statement on Monetary Policy. The BOJ decided to maintain the uncollateralized overnight call rate at around 0.25%, indicating that monetary policy will remain accommodative for the foreseeable future.
The Bank assessed Japan’s economy as recovering moderately, though there are signs of weakness in certain areas. While exports and industrial production have been largely stagnant, business investment has been increasing alongside improved corporate profits. The employment and income situation has also shown moderate improvement, and private consumption continues to rise, despite the pressures from price increases. However, housing investment has been relatively weak, and public investment has remained flat, even as financial conditions are favorable.
On the inflation front, the year-on-year increase in the Consumer Price Index (CPI), excluding fresh food, has been in the range of 2.5% to 3.0%, primarily due to rising services prices and wage increases. The effects of past import price increases are beginning to wane, but inflation expectations have risen moderately. The BOJ projects that inflation will continue to increase gradually, with underlying CPI inflation expected to align with the Bank’s price stability target in the second half of the forecast period. This is attributed to improvements in the output gap and an intensification of the cycle between wages and prices.
The Bank acknowledged several risks to the outlook, including uncertainties in overseas economies, commodity prices, and domestic wage and price-setting behaviors. Notably, exchange rate fluctuations are becoming more likely to affect domestic prices, especially as businesses increasingly move toward raising wages and prices.
For the full statement click here.
