Bank Of Japan Policy Meeting: Part 2:

http://www.boj.or.jp/en/mopo/mpmsche_minu/opinion_2020/opi200121.pdf

Commentary:

Part 2:: Prices and Opinions of BOJ Policy Makers:

Prices:

1. CPI Index: Year-on-year rate, according to the article is likely to increase. But they mention long term inflation expectations rising. This seems to be a common theme, strategy, or wish that inflation would get to the 2 percent level. But even the BOJ has admitted in the past, it hasn't happened yet. Crude oil prices are worrisome for the CPI.

2. Output gap: The output usually means the difference between the gap between actual or real output and the output the economy could produce at full employment. It seems Japan is at or near full employment now, with a supposed labor shortage. But at the same time, what exactly is full employment, and does supposed full employment represent actual jobs that can boost the economy, or how many jobs are contract, part-time, low skilled, or underemployed type jobs in an economy. Agreed, full employment of meaningful career and productive jobs would definitely increase real output in an economy.

3.Prices have not risen: BOJ admits prices have not risen, and even productivity might be a variable in that. But the BOJ does mention the economy is strong or they use the word resilient and mention the economy will not move back into deflation. The BOJ does say wait for inflation to accelerate as they continue to examine employment and other indicators. I think a big factor, as has been mentioned over the years is the need for further improve wage increase. Companies are sitting a lot of cash, and as such, can afford to increase the wages of their employees. Which will in effect, as consumers see wage increases, they better about a little more disposable income, and as such some of that might be spent some might be saved. That amount spent might help increase demand and some inflation in the economy.

4. Wages increases: As mentioned above. BOJ mentions an increase in wages will/can mostly increase overall prices in the economy. At the same time the need to maintain and improve corporate profits, so that business sentiment doesn't drop, although it has some recently But business sentiment is just like consumer sentiment. If businesses don't feel good about the future and current/future profits they too are not going to use the money, for example for such things as present/future investments, updates of existing facilities, and of course increases in wages.

5. More in the positive output gap: BOJ mentions the output gap has been slow and must be examined carefully and to be more precise, examine the inflation situation. To this I might say, is it all possible, that the new normal of the Japan economy is not normal rates of inflation, after the BOJ since 2013 or so has been trying to increase inflation. Maybe its time to re-define just how much inflation is important or needed in an economy, especially in a economy that seems to just keep moving along at around 1 percent year after year, and to note a very stable economy.

To be continued....in part 3 later.

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