[For Investment Beginners] What is the BOJ Meeting? What happens to the Nikkei Stock Average when interest rates are raised? The basics of monetary policy you need to know
What is the BOJ Meeting? What happens to the Nikkei Stock Average when interest rates are raised? The basics of monetary policy that investment beginners should know
*This article is intended to provide information for reference in making investment decisions and does not recommend the buying or selling of any specific financial products or stocks. Investing carries the risk of loss of principal. Please make your own final investment decisions.
Introduction
When watching the news, you may see headlines like:
“Focus on the next BOJ meeting,”
“BOJ decides to raise interest rates,”
“Nikkei average falls following BOJ monetary policy”
You may see such news.
However, if you have just started investing,
“What exactly is a BOJ meeting?”
“Why does the stock price move when the BOJ raises interest rates?”
Many people may wonder about this.
In fact, the Bank of Japan’s monetary policy is one of the important factors that move Japanese stocks.
Especially if you are investing in individual stocks,
“BOJ meeting = an event to just watch the news”
instead of,
“a significant event that could cause stock prices to move significantly”
it is important to understand it as such.
In this article, we will explain the basics of the BOJ meeting for investment beginners, as well as the impact of interest rate hikes on the Nikkei average and individual stocks, as clearly as possible.
Chapter 1: What exactly is a “BOJ meeting”?
The official name is the “Monetary Policy Meeting”
What is generally called a “BOJ meeting” is officially known as the “Monetary Policy Meeting.”
It is an important meeting where the Bank of Japan’s Policy Board discusses and decides on monetary policy.
Simply put,
“A meeting where the Bank of Japan decides on Japan’s interest rates and monetary policy”
is an easy way to think about it.
Chapter 2: Why does the BOJ change interest rates?
The main goal is “price stability”
The Bank of Japan conducts monetary policy with the goal of price stability.
If prices rise rapidly, it has a major impact on our daily lives.
For example,
・Food prices rise
・Electricity and gas bills rise
・Corporate procurement costs rise
・The balance with wages is disrupted
are things that happen.
Therefore, the BOJ adjusts its monetary policy while checking the status of the economy, prices, and wages.
Chapter 3: What is a “rate hike”?
Rate hike = raising interest rates
A “rate hike,” which you often hear about in the news, means raising interest rates.
When interest rates rise, it also affects the interest rates when companies and individuals borrow money.
For example, suppose a company borrows money from a bank to invest in equipment.
If interest rates are low,
“I’ll borrow some money and invest in equipment”
becomes easier to think.
On the other hand, when interest rates rise,
“Borrowing costs will increase, so let’s wait a bit on investing.”
This is a possibility.
In other words,
Interest rate hike
↓
Increased cost of borrowing money
↓
Impact on corporate activity and consumption
This creates a chain reaction.
Chapter 4: So, what happens to the Nikkei Stock Average when interest rates rise?
This is the most important point for investment beginners.
To give you the conclusion first,