Economists at Commerzbank analyze what is relevant regarding the upcoming Bank of Japan’s (BoJ) meeting next week.
The “March vs. April” question is not really important
The question of whether the Bank of Japan (BoJ) will raise its key interest rate next week or at the subsequent meeting on April 26 is not solely about timing. Instead, it revolves around two distinct inquiries: firstly, the likelihood of a near-term rate increase, and secondly, the potential trajectory of rate adjustments thereafter. This distinction is crucial, as historical instances such as 2000 and 2006 underscore the significance of sustained monetary policy adjustments versus isolated moves.
Of these questions, the latter carries far greater weight. While a solitary rate hike to 0% or +0.1% by the BoJ next week may not significantly impact inflation, the real economy, or the Japanese yen exchange rate, its importance lies in signaling the beginning of a broader cycle of rate adjustments. The true relevance of such a move hinges on whether it heralds a series of subsequent rate hikes or risks mirroring past episodes where attempts at monetary policy normalization faltered after initial steps.
