Japan's Ministry of Finance plans to raise its assumed long-term interest rate to 1.5% for the fiscal year 2024/25, up from the current record-low of 1.1%, indicating a potential strain on the country's budget as it is set to exceed 114 trillion yen ($782.64 billion).
Financial expert Izuru Kato warns that a delay in the Bank of Japan's monetary policy normalization could result in steep interest rate increases and highlights the bank's concerns over inflation stabilization, government debts, and housing loans.
The spike in retail inflation has raised uncertainty for investors and savers, with expectations of interest rate cuts being pushed to the next fiscal year and the possibility of a rate hike. The Reserve Bank of India projects inflation to stay above 5% until the first quarter of 2024-25, and food price pressures are expected to persist. While inflation may impact stock market returns, gold and bank deposit rates are expected to remain steady.
Bank of Japan Gov. Kazuo Ueda explains that price growth is slower than the target of 2%, leading officials to continue their current monetary-policy strategy of easing.
Bank of Japan Governor Kazuo Ueda stated that underlying inflation in Japan remains below the bank's 2% target, leading to the decision to maintain the current approach to monetary policy, despite core consumer inflation staying above the target for the 16th consecutive month.
The Bank of Japan surprised financial markets by announcing "greater flexibility" in its monetary policy, specifically loosening its yield curve control, which has led to speculation about a potential tightening of monetary policy and the end of the policy measure.
Japan's inflation is "clearly in sight" of the central bank's target, according to board member Naoki Tamura, suggesting the possibility of ending negative interest rates early next year.
The Bank of Japan has signaled a possible early end to its easy money stance, with the central bank considering interest rate hikes and an early end to its bond-buying policy, which caught markets off guard and caused the yen to surge and Japanese government bond yields to reach a 9-year high.
Bank of Japan policymakers are discussing the need to shift away from the massive monetary stimulus of the past decade, suggesting a potential policy change in response to growing price pressures and changes in Japan's deflation-prone economy.
Japanese long-term interest rates and the yen rose after Bank of Japan Governor Kazuo Ueda hinted at the possibility of ending the bank's negative interest rate policy.
The Bank of Japan's potential shift away from negative interest rate policy has ignited the Japanese Government Bond and currency markets, with the yen seeing its biggest rise in two months and the 10-year JGB yield reaching its highest point in almost a decade.
Japan's ruling party lawmaker Hiroshige Seko supports maintaining an ultra-loose monetary policy, following comments by the Bank of Japan governor that caused the yen and bond yields to rise.
Speculation is growing that the Bank of Japan may be moving away from ultra-loose policy and negative interest rates, with its policy meeting being the highlight of the week in Asian markets.
The Federal Reserve faces the challenge of bringing down inflation to its target of 2 percent, with differing opinions on whether they will continue to raise interest rates or pause due to weakening economic indicators such as drops in mortgage rates and auto sales.
The Bank of Japan is expected to maintain ultra-low interest rates and reassure markets that monetary stimulus will continue amidst China's economic struggles and the global impact of US interest rates.
Japan's core inflation remained steady in August, staying above the central bank's 2% target for the 17th consecutive month, signaling broadening price pressure and potentially increasing the case for an exit from ultra-easy monetary policy.
If the Japanese yen weakens beyond 150 to the dollar, the Bank of Japan could be forced to hike rates sooner than expected, which may lead to the unwinding of the yen carry trade and a return of Japanese capital to domestic bond markets, potentially triggering market volatility.
Japanese consumer inflation grew above expectations in August, potentially signaling a move away from negative interest rates as the Bank of Japan meets to discuss its monetary policy.
/cloudfront-us-east-2.images.arcpublishing.com/reuters/WHD2YBWSJNPNDDXKUPZM4SVNA4.jpg)