In Rare 6-3 Vote, BOJ Delays Interest Rate Hike Again

BOJ Sees Higher Prices and Lower Growth Due to Iran War

Key Points:

·       The BOJ now forecasts that, due to the Iran war, GDP growth this year will slow to just 0.5%, half the pace predicted in the January forecast

·       Meanwhile, while headline inflation aside from fresh food will rise to 2.8%, almost 1 percentage point above the January forecast of 1.9%

·       On a divided 6-3 vote—a rarity—the Bank of Japan (BOJ) says it will wait and see before raising rates to 1%; I will discuss the wisdom of that decision

·       I’ll assess the claim from some critics that pressure from the Takaichi administration blocked the BOJ

·       With the war exacerbating stagflation— rising prices and slowing growth—it’s unclear whether inflation or stagnation is the greater threat

·       I will look at the BOJ’s estimate of “hidden inflation,” the gap between prices that customers see and what prices would have been if not for additional government subsidies on food and energy

·       Unfortunately, BOJ Policy Board keeps refusing to discuss—or perhaps even see—one of the biggest threats to its rosy scenario: falling real wages.

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