Bank of Japan (BoJ) board member Junko Nagakawa stated Thursday that financial markets are reflecting an uncertain environment. Nagakawa refrained from commenting on foreign exchange or tariff discussions. She indicated that policy decisions for the upcoming meeting will be determined after evaluating various factors, including progress in tariff negotiations. Nagakawa acknowledged market nervousness and heightened uncertainty, noting that short- and medium-term Japanese Government Bonds (JGBs) remain in negative territory. The BoJ’s accommodative policy continues to support economic activity. Nagakawa stated that the BoJ recognizes both upside and downside risks and will gather information before making appropriate decisions at the next policy meeting. As of the time of reporting, USD/JPY was trading 0.60% higher at 142.78.
The Bank of Japan (BoJ) serves as the Japanese central bank, responsible for setting monetary policy. Its mandate includes issuing banknotes and maintaining price stability, targeting an inflation rate of approximately 2%.
In 2013, the BoJ implemented an ultra-loose monetary policy to stimulate the economy and address low inflation. This policy involved Quantitative and Qualitative Easing (QQE), which included asset purchases, such as government and corporate bonds, to increase liquidity. In 2016, the BoJ further eased policy by introducing negative interest rates and directly controlling the yield of 10-year government bonds. The BoJ discontinued negative interest rates in March 2024, effectively moving away from its ultra-loose monetary policy.
The BoJ’s extensive stimulus measures contributed to the depreciation of the Yen against major currencies. This trend was amplified in 2022 and 2023 due to policy divergence between the BoJ and other central banks that aggressively raised interest rates to combat high inflation. The resulting interest rate differentials further weakened the Yen. This trend partially reversed in 2024 with the BoJ’s shift away from its ultra-loose policy.
The decision to unwind the ultra-loose policy was driven by a weaker Yen, rising global energy prices, and increasing Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries, a key factor influencing inflation, also contributed to the policy shift.
