Bank of Japan Confirms Continued Economic Recovery and Maintains Path Toward Policy Normalization
The minutes of the latest Monetary Policy Committee meeting at the Bank of Japan (BOJ) revealed that Japan’s economy continues to recover gradually, despite lingering external risks that may influence the pace of growth in the coming period.
During the meeting held on September 17–18, the committee agreed to keep the main policy interest rate unchanged at 0.5%, in line with previous market expectations. However, the BOJ surprised investors by announcing a reduction in its holdings of exchange-traded funds (ETFs) — a move analysts viewed as a clear sign of the bank’s ongoing gradual normalization of monetary policy after years of unprecedented stimulus.
Inflation and External Environment Risks
The minutes indicated that committee members are closely monitoring economic developments and monetary policy shifts in major global economies, given their potential indirect impact on Japan’s outlook. Members also noted a slight increase in inflation expectations due to persistent external pressures, though achieving stable and sustainable inflation will still require more time and careful coordination between monetary policy, labor market dynamics, and wage growth.
Wage Challenges and Price Stability
The Japanese government continues to emphasize that balancing inflation and wage growth sustainably remains a key condition for solidifying the economic recovery. Tokyo is seeking to encourage companies to raise wages and stimulate domestic spending in line with the BOJ’s 2% inflation target, while reducing reliance on ultra-loose monetary policy.
Currency Movements and Market Impact
The Japanese yen experienced notable fluctuations following the release of the minutes, briefly nearing its lowest level in eight months at 154.48 yen per U.S. dollar on Tuesday before regaining some ground. Japanese financial authorities continue to monitor currency movements closely amid concerns that a weaker yen could raise import costs and push up prices, potentially affecting short-term price stability.
Current indicators suggest that the Bank of Japan remains committed to a cautious normalization path, focusing on labor market developments and global inflation trends. The bank is expected to balance its support for economic recovery with the need to maintain price stability, pursuing a gradual approach aimed at avoiding monetary shocks while preserving market confidence in Japan’s policy direction over the coming months.
