BoJ's Masu says underlying inflation gradually approaches 2% without sharp overshoot Bank of Japan policy board member Kazuyuki Masu stated that underlying inflation is gradually moving toward the 2% target without showing signs of a sharp overshoot. He added that the policy rate remains below the estimated neutral range and needs correction. Bank of Japan (BoJ) policy board member Kazuyuki Masu stated on Thursday that the policy rate is still sitting below the estimated range for the neutral rate and has remained beneath that threshold for an extended period, creating a situation that requires a fix soon. According to Kazuyuki Masu, keeping the policy rate below its estimated neutral level range is unnatural and must be addressed properly. Inflation Outlook and Cautious Approach Addressing the trajectory of consumer prices, Kazuyuki Masu noted that underlying inflation is gradually approaching the 2 percent target, though authorities do not foresee it sharply overshooting above that threshold at this stage. When questioned about the possibility of a 50-basis-point rate hike, he emphasized that policymakers should proceed with a cautious approach when considering any moves to push up borrowing costs. Foreign Exchange Movement and Market Context Amid these policy remarks, the USD/JPY currency pair traded up 0.05 percent on the day at 153.60 during the writing process. The pair managed to stabilize above the 153.50 mark during the Asian trading session, though it continued to hover near a seven-month low touched earlier in the week as hawkish repricing by the Bank of Japan continued to provide underlying support for the Japanese Yen. Mandate and Historical Monetary Policy of the BoJ The Bank of Japan serves as the central bank of the nation, tasked with formulating monetary policy, issuing banknotes, and executing currency and monetary control to guarantee price stability, which translates to maintaining an inflation target around 2 percent. In 2013, the institution embarked upon an ultra-loose monetary policy framework designed to stimulate economic activity and foster inflation amidst a prolonged low-inflation environment. That framework relied heavily on Quantitative and Qualitative Easing, involving asset purchases such as government and corporate bonds to inject liquidity into the financial system. Shift Away from Ultra-Loose Monetary Stance The central bank deepened this strategy in 2016 by implementing negative interest rates and direct yield curve control over ten-year government bonds. A decisive turning point arrived in March 2024, when the Bank of Japan lifted interest rates and officially retreated from its long-standing ultra-loose monetary policy stance. This historic stimulus caused the Yen to depreciate significantly against major peers, a depreciation that worsened through 2022 and 2023 due to a growing divergence between the BoJ and other major global central banks that aggressively hiked rates to combat multi-decade inflation highs. Energy Prices, Wages, and Broader Market Pressures A softer Yen combined with sharp spikes in global energy costs pushed Japanese inflation past the central bank's 2 percent target, supported by rising wage expectations within the country. Meanwhile, rising Federal Reserve rate-hike expectations for September and escalating geopolitical tensions between the United States and Iran helped alleviate selling pressure on the US Dollar, offering support to the currency pair ahead of upcoming US inflation figures. What this means for you The monetary policy direction and statements from Bank of Japan officials carry direct implications for global currency markets and international investors. • Across India: Indian financial markets and currency dynamics can experience indirect spillover effects from shifts in the Japanese Yen and broader global interest rate expectations. Traders and investors should monitor currency fluctuations and macroeconomic policy updates from major Asian economies closely. • In Japan: For consumers and businesses residing in Japan, the trajectory of interest rates and inflation hovering around the 2 percent target directly influences borrowing costs and everyday living expenses. Individuals should carefully manage household debt and financial planning as the central bank normalizes monetary policy. Why this happened The ongoing adjustments in the Bank of Japan's policy stance stem from prolonged domestic economic conditions and growing pressures within global currency markets. • Policy Rates Below Neutral Range: Years of maintaining an ultra-loose monetary framework left the domestic policy rate significantly below estimated neutral rate levels, a discrepancy officials now aim to correct. • Inflation Surpassing Targets: A depreciating Yen coupled with surging global energy costs drove domestic inflation past the central bank's 2 percent threshold, prompting a policy reassessment. • Global Policy Divergence: Aggressive rate hikes by other major international central banks widened the policy differential against the Yen, compelling the BoJ to retreat from its historical easing stance. Questions & Answers 1. What did Kazuyuki Masu say about the Bank of Japan's policy rate? Kazuyuki Masu stated that the policy rate is still below the estimated range on the neutral rate and has remained below that level for a very long time, requiring a fix soon. 2. What is the outlook for underlying inflation according to the BoJ official? He noted that underlying inflation is gradually approaching the 2 percent target but does not show signs of sharply overshooting above that level. 3. What approach was suggested regarding a potential 50-basis-point rate hike? He emphasized that authorities should proceed with a cautious approach when considering pushing up borrowing costs. 4. How was the USD/JPY currency pair performing at the time of the report? The USD/JPY pair was up 0.05 percent on the day, trading at 153.60 during the writing process. 5. When did the Bank of Japan retreat from its ultra-loose monetary policy? The Bank of Japan effectively retreated from its ultra-loose policy stance by lifting interest rates in March 2024. https://trendkia.com/en/market/boj-ke-kazuyuki-masu-bole-mahngai-2-pratishata-ke-kariba-lekina-bhari-uchhala-ki-ashnka-nahin-30729 TrendKia — Har trend, sabse pehle.