Boj Faces More Pressure For Rate Hikes

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Boj Faces More Pressure For Rate Hikes

Bank Of Japan Faces More Pressure For Rate Hikes

According to experts, the weak consumption in Japan will increase rather than be subdued on account of the weak Japanese yen.

Higher import costs have seriously hurt household purchasing power, which has led to weak consumption. All of this is now putting pressure on the Bank of Japan to raise the policy rate as that's the only way to support the JPY.

Pressures like these will continue to force BoJ governor Ueda to include hawkish signals in his comments. But even after the proposed rate cuts, it will still take some time before the consumption can rebound to healthy levels.

Usd/Jpy Up By 10% Since Year'S Start

This year (2024), the Yen lost 10% against the USD despite the fact that the BoJ ended its decade-long policy of negative rates. Now, the market focus has shifted towards the policy divergence between the Japanese & US internet rates.

Last Thursday's data showed that the Japanese economy had contracted a lot more during Q1 2024. A weaker Yen and rising costs of living are the key factors that have led to this outcome. At the same time, a slump is seen in exports as the benefits of a weaker currency slowly fade away.

Despite the weak economic activities, the BoJ will not go ahead with a complete overhaul of the monetary policy. Instead, the BoJ is hoping that the consumption will take a U-turn based on the projections.

The BoJ is of the view that rising wages will eventually lead to higher consumption. However, the central bank will have to wait for the Q2 GDP data to confirm this hypothesis.

There's no doubt a weaker Yen has become a problem for the central bank and even the Japanese government. Now, it remains to be seen whether the BoJ will go ahead with yet another FX intervention or opt for higher rates to support the JPY.

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