Japan is hosting its version of the famous Federal Reserve Jackson Hole symposium, bringing together top central bankers and economists from around the world. This year’s two-day conference, held by the Bank of Japan and its think tank, focuses on pressing issues like sluggish economic growth and persistently high inflation.
Unlike past gatherings that often touched on tentative interest rate changes, the 2024 Tokyo meeting will explore how central banks can respond to conflicting challenges. These include stubborn inflation, downside economic risks, market volatility, and the impact of U.S. tariffs.
Key Themes: Inflation, Growth, and Trade Tensions
The event’s theme, “New Challenges for Monetary Policy,” reflects growing concerns about how global economic conditions are complicating central banks’ actions. Many institutions face headwinds created in part by the trade policies of U.S. President Donald Trump. These policies have disrupted markets and slowed growth worldwide.
At the same time, central banks are divided in their approaches. For example, the Bank of Japan plans to continue raising rates and gradually reduce its bond purchases. This contrasts with other major economies that have cut interest rates to stimulate growth. Recent global developments have, however, led to questions about whether the Bank of Japan should slow its pace of tightening.
Shinyasu Atago, a former Bank of Japan official, said, “While the Bank of Japan may be forced to keep rates unchanged for now, it does not need to abandon rate hikes altogether. It just needs to communicate clearly that rate increases can resume when conditions improve.”
Global Participation and Past Discussions
The conference took place at the Bank of Japan’s headquarters in central Tokyo. Attendees included officials from the U.S. Federal Reserve, the European Central Bank (ECB), the Bank of Canada, and the Reserve Bank of Australia. Notably, New York Fed President John Williams was present.
Last year, participants focused on lessons from the recent recession. They examined unconventional monetary tools used to support economies. They also debated whether Japan, with its long history of ultra-low rates and low inflation, can break free from decades of deflation and achieve sustained wage growth.
Inflation Risks and Trade-Related Concerns
This year’s meeting paid special attention to risks stemming from tariff-driven economic slowdowns. Policymakers remain cautious about the danger of prolonged high inflation, a challenge made worse by supply shocks like the coronavirus pandemic.
One conference session covered “Reserve Demand, Interest Rate Control, and Quantitative Tightening.” Another discussed a recent International Monetary Fund (IMF) paper titled “Monetary Policy and Inflation Panics.” The IMF warns that large supply shocks can cause inflation to persist. It cautions central banks that ignoring cost-push inflation could lead to policy failure.
Unstable Global Policy Environment
Many major central banks face difficult decisions amid trade wars and unpredictable U.S. tariffs. The Federal Reserve initially planned more rate cuts but has moved to a cautious stance as officials warn tariffs may increase inflation.
Meanwhile, the ECB, expected to reduce rates in June, is also reconsidering its approach. Conversations with ECB policymakers suggest a pause in easing may come soon, driven by inflation concerns. Isabel Schnabel, an ECB executive board member, spoke out against tariffs at a May conference, noting that while tariffs may reduce inflation short-term, they pose upside risks in the medium term.
Japan’s Balancing Act
The Bank of Japan must manage growing inflation pressures at home while facing slower growth due to U.S. tariffs. The tariffs led Japan’s central bank to lower its growth forecast on May 1, prompting a pause in rate hikes. Short-term interest rates remain at a low 0.5%.
Governor Kazuo Ueda has said the Bank is prepared to resume raising rates if inflation consistently reaches its 2% target. In April, Japan’s core consumer inflation reached a two-year high of 3.5%, with food prices rising 7%. These increases strain household budgets and highlight inflation’s persistence.
Atago, now chief economist at Rakuten Securities Economic Research Institute, commented, “It’s clear that the Bank of Japan has failed to meet its price stability goals. Inflation has always been a concern, and the Bank may have fallen behind in tackling domestic price pressures.”
Key Speeches to Set Tone
Governor Ueda will deliver the keynote address on Tuesday, opening the conference. Following him, Agustín Carstens, general manager of the Bank for International Settlements (BIS), will also speak.
These presentations will help frame discussions on how central banks can navigate the complex environment of mixed inflation signals, trade tensions, and fragile growth prospects in 2024 and beyond.
