MNI BoJ Review – July 2024: Taper, Hike & Hawkish Guidance

EXECUTIVE SUMMARY

• The Bank of Japan (BoJ) held its Monetary Policy Meeting (MPM) on July 30-31, where it raised the policy rate guidance from 0-0.1% to 0.25%, defying economic consensus. The decision was made with a 7-2 vote, with two dissenting members advocating for a postponement.
• The BoJ stated that the rate hike was due to increased confidence in achieving its price stability goal, driven by stronger wage pass-through to prices and a heightened risk of inflation from higher import prices. Consequently, there was a need to adjust the degree of monetary accommodation.
• In its statement, the BoJ included hawkish forward guidance, indicating that if the economy evolves as projected in the Outlook for Economic Activity and Prices, further policy tightening will occur. Real rates remain highly accommodative despite the gradual tightening cycle. During the press conference, Governor Ueda mentioned that 0.50% is not a ceiling for the BoJ policy rate.
• There were no dissenting votes on the Quantitative Tightening (QT) decision. The BoJ decided to reduce monthly JGB purchases from around ¥6 trillion to ¥3 trillion per month in January-March 2026, at a rate of ¥400 billion each quarter. The BoJ noted it could adjust the bond-buying plan as needed and will respond to sharp rises in yields.
• In its Outlook Report, the BoJ kept its new core CPI (excluding fresh food and energy) outlook unchanged throughout the forecast horizon of FY2024-26. The BoJ added that exchange rate developments are now more likely to impact prices than in the past.
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BOJ Review - Jul 2024.pdf