BoJ’s Noguchi: Japan’s economy is growing steadily

Bank of Japan (BoJ) board member Asahi Noguchi said on Thursday that the Japanese economy is growing steadily. Noguchi further stated that the central bank is likely to keep adjusting the policy rate, while carefully assessing whether underlying inflation would be stabilising around 2%.

Key quotes

Japan’s economy is growing steadily.Japan’s economy is currently shifting to a new phase where sustainable inflation is realized, accompanied by wage increases.Downside risks to the Japanese economy stemming from overseas economies have rapidly heightened due to U.S. tariff policies.BOJ is likely to keep adjusting the policy rate while carefully examining whether underlying inflation would be stabilising around 2%.BOJ shouldn’t pre-set the terminal rate in raising rates.BOJ should spend time gauging impact of each rate hike on economy, scrutinise risks, before moving to next hike.10-year JGB yield rose near 1.6% in March but I didn’t see it as disruptive as it reflected change in market’s view on terminal rate.Personally don’t see the need to make big changes to the existing BOJ taper plan.As for the taper plan for April 2026 onward, we need to examine it with a longer-term perspective.BOJ can spend sufficient time reducing its balance sheet, doing so is desirable for market stability.BOJ is maintaining loose monetary policy as rise in inflation is mainly driven by import costs, not necessarily sustainable.Monetary policy must focus on underlying price moves that are strongly linked to nominal wage developments.Wage, domestic demand-driven price pressure is not strong enough but steadily increasing.Our basic monetary policy stance should be to cautiously move on policy adjustment while scrutinising the economy and its risks.

Market reaction  

The USD/JPY pair is down 0.25% on the day to trade at 143.30 as of writing.

Bank of Japan FAQs

What is the Bank of Japan?

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%.

What has been the Bank of Japan’s policy?

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.

How do Bank of Japan’s decisions influence the Japanese Yen?

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.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

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.