Bank of Japan (BoJ) Governor Kazuo Ueda on Tuesday held talks with US Treasury Secretary Bessent on the sidelines of the G20, but giving no details on what was discussed. Ueda said central banks discussed the need for improved communication to achieve appropriate monetary policy as the global environment changes. He declined to comment on markets pricing in a strong chance of a September rate hike.
Key quotes
Discussed with central banks need to communicate for suitable monetary policy to achieve price stability amid changing global environment.
Held talks with US Bessent but no details disclosed.
No comment on daily moves, markets price in high likelihood of September rate increase.
Data since July meeting broadly matches projections in July quarterly report.
Our fundamental approach to monetary policy remains mostly unchanged since July.
Focus on Middle East conflict, oil demand, FX impact on economy and prices in policy guidance.
Will discuss suitable policy at next meeting while examining economy, prices, financial conditions.
Will assess if economy, prices align with our scenario along with risks.
Increased likelihood of economic scenario and inflation risks to be discussed at next board meeting.
Monetary conditions remain loose, so we want to keep hiking rates.
Policy rate hiked five times, need to carefully assess cumulative impact on economy.
We will also consider upside price risks in policy deliberations.
Market reaction
At the time of writing, the USD/JPY pair is up 0.02% on the day at 160.20.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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