Economic conditions remain accommodative and options for raising interest rates remain on the table

According to a recent Bloomberg Report, Ueda and Tuesday in a paper reiterated that the central bank will continue to raise rates if economic and price data meet expectations. It also explained the bank's July policy decision to the government's economic and Fiscal Policy Group, chaired by Prime Minister Fumio Kishida. According to the document, Ueda said economic conditions remained accommodative even after the July rate rise, as real interest rates remained significantly negative. Ueda and male to maintain the position of interest rate hikes on the news, the dollar fell quickly against the yen, the euro session on Tuesday, the yen against the dollar to a short-term rise, now at about 146.13 yen.

At the end of July, the BOJ simultaneously raised interest rates and cut its balance sheet by 15 basis points over expectations, cutting its quarterly bond purchases by Y400BN. The central bank decided to raise interest rates in July because the economy and prices were moving in line with its expectations and there were upside risks to prices, according to the latest documents. After the more-than-expected“Hawkish”, most markets expect the BOJ to have room to raise interest rates this year. Morgan believes the October inflation report is crucial because many service prices will be revised in the same month. If service prices do rise as expected, this could prompt the BOJ to tighten monetary policy further in December.

At a congressional hearing last month, Ueda suggested that the central bank did not intend to raise interest rates in a hurry, but rather to keep a close eye on the impact of unstable financial markets on the inflation outlook. But if economic certainty rises, the BOJ's stance of adjusting monetary easing will not change. As a result of the depreciation of the yen, the CPI in Tokyo accelerated in August, rising 2.6% year-on-year, a significant increase from the previous value of 2.2% . The core CPI (excluding fresh food and energy) rose 1.6% year-on-year, more than the expected 1.4% and the previous 1.5% . Morgan expects commodity prices to remain the main driver of inflation in the short term, with wage pressures likely to push up service prices further. Moreover, Japan's annualised nominal GDP in the second quarter was more than Y600,000 bn. However, many Japanese economic circles believe that the performance of the economic data in the second quarter does not mean a bright future for the Japanese economy. Some media analysts have pointed out that the annual nominal GDP has reached the target of 600 trillion yen, this is mainly due to the“Water injection” effect brought about by the continuous depreciation of the yen and the rise in global raw material prices over the past period. On the contrary, personal consumption and real growth have been in a prolonged slump, does not represent the so-called“Strong” performance of the Japanese economy.

Moreover, the trend of personal consumption willingness of Japanese citizens remains low. Some forecasters predict that Japan's real GDP and real personal consumption in the third quarter may return to lower-than-expected performance. The future economic situation of Japan still faces great uncertainty.

On the other hand, with specific data analysis, the contribution of domestic demand to economic growth reached 0.9 percentage points, accounting for more than half of the Japanese economy, after four consecutive quarters of negative growth, personal consumption turned positive, up 1% quarter-on-quarter. Residential investment rose 1.6 per cent and business investment in equipment rose 0.9 per cent month-on-month, showing that domestic demand was indeed the biggest driver of GDP growth in Japan in the second quarter, but there was also a degree of chance and uncertainty behind it.

In Tuesday's comments, Tateda reiterated that economic conditions remained accommodative even after the July rate rise and that current interest rates were strongly supportive of economic activity. But behind the seemingly bright economic data lies more uncertainty about the Japanese economy, and more volatility is likely. Some argue that the Japanese economy should not revel in“Digital” breakthroughs, but should instead focus on ordinary people's real-life feelings and expectations about Japan's economic prospects. How to formulate a reasonable domestic policy to hedge the“Disadvantage” of economic structure has become an important issue that the Japanese government and the Bank of Japan have to face.