Bank of Japan and US Banks

■ The Bank of Japan may continue raising interest rates at a relatively moderate pace while observing the economic situation, exchange rate trends, and the government's intentions.  

■ The FOMC meeting minutes show that the possibility of further interest rate cuts "depending on the data" remains, with economic indicators proving crucial. 
 
At the end of last year, Japan and the United States released important information regarding monetary policy. The Bank of Japan released its "main opinions" from its monetary policy decision meeting (held on December 18-19) on December 29. One member pointed out that "Japan's real policy rate (policy rate minus inflation rate) is significantly at the lowest level globally." While acknowledging the impact on yen depreciation and long-term interest rate increases, the member also suggested a steady pace of interest rate hikes to avoid policy falling behind the curve. Furthermore, some argued that there is still a considerable gap between the current rate and the neutral rate, and that interest rate hikes should be implemented at a pace of once every few months in the short term. The market generally interpreted this as indicating a continued stance of interest rate hikes, but some pointed out that the neutral rate level itself is difficult to define accurately; meanwhile, opinions from the Cabinet Office suggested the need to closely monitor the trends in equipment investment and corporate profits. Future interest rate hikes are expected to proceed cautiously and in close communication with the Takaichi government, while carefully assessing their impact on the economy and exchange rate trends. 

 
The Federal Reserve (FRB) released the minutes of its Federal Open Market Committee (FOMC) meeting (held December 9-10) on December 30th. Most participants noted that transitioning to a more neutral policy stance would help prevent a significant deterioration in labor market conditions. On the other hand, a few participants argued for a pause in rate cuts to assess the effectiveness of previous cuts in supporting the labor market; several others pointed to the risk of entrenched high inflation, arguing that further reductions in policy rates while inflation indicators remain high could be interpreted as a weakening commitment to the 2% inflation target. This aligns with the stance implied by FRB Chairman Powell at the post-meeting press conference: while implementing sufficient rate cuts to prevent a more severe deterioration in the labor market, a relatively high level of interest rates sufficient to sustainably curb inflation has been maintained. Participants who supported maintaining the policy rate unchanged, or who might support this stance, also pointed out that a large amount of labor market and inflation data will be released before the next FOMC meeting (January 27-28), which will help determine whether further rate cuts are appropriate. As concerns about data accuracy due to the partial government shutdown gradually subside, the employment and price-related economic indicators released in January may change market expectations for a renewed rate cut at the March FOMC meeting and impact financial markets, warranting close attention.