Bank of Japan: Updated Nov. 28

 https://mainichi.jp/english/articles/20211108/p2g/00m/0bu/029000c

Article:

TOKYO (Kyodo) -- Bank of Japan policymakers acknowledged that inflationary pressure was rising due to higher energy prices but believed it was moderate and monetary easing should be maintained, a summary of opinions at its October policy meeting showed Monday.

One board member warned of the negative impact of higher utility bills and food prices on consumers, as economic activity gathers momentum following the lifting of a COVID-19 state of emergency.

At the Oct. 27-28 meeting, the BOJ made no change to its ultraloose monetary policy. It decided to leave short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bond yields to around zero percent.

Ideas:

Because an economy is very complex and there are many different groups within an economy inflation can affect different groups differently. 

The one group that is always a concern is the fixed income group, which even a small increase in inflation can reduce their disposable income.

Another group by be small businesses which might be operating on thin profit margins, and so with them too, any increase in inflation especially related to higher energy costs which can make their thin profit margins even smaller.

Even though it might moderate to most in an economy or society, it might not be moderate to some groups.

Monetary easing should be maintained as the Japanese economy is far from being out of trouble, and not with the rise of another virus variant, it even more important fo the BOJ and the Japanese government to remain vigilant as to what is going on in Japan and globally.

If inflation continues to increase that of course will decrease consumers' disposable income, which might reduce consumer spending in the economy.

If might be important or needed to use a minus 0.1 percent interest rate on large corporate bank accounts as way to motivate large companies to use their money or use on increasing the wages of their employees, which PM has suggested this past week.

Article:

 After the yen's rapid slide against the U.S. dollar raised concern about its negative impact on the economy, BOJ Governor Haruhiko Kuroda told a post-meeting press conference that the recent weakening of the Japanese currency should be positive as it would boost Japanese firms' overseas profits when repatriated.

A weak yen also inflates import prices, a concern for resource-poor Japan.

"The CPI (consumer price index) has been pushed up by the pass-through of price rises in imported raw materials, but inflationary pressure stemming from wage increases and supply-side constraints has been weak," one opinion said.

Another noted that utility and food prices are rising, saying, "It is necessary to pay attention to the impact these price rises may have on pent-up demand in terms of the timing of its materialization and the strength."

Ideas:

There are always positives and negatives to any economic action or activity as an economy is a very complex organism.

While a weak yen, might be good for exporters is might be for importers. As Japan is a resource deficient economy, its has to import much of what it needs to keep the economy moving.

A weak yen increases the prices/cost of products/materials that importers bring in to Japan, which means, it might drain the Japanese account of needed funds for programs needed to help the economy during the current pandemic.

At the same time, a positive, a weak yen leads to more income for exporters which means more being added to the Japanese current account, which the Japanese government hopes will be more than that lost from the weak yen and imports.

So the fact that 20 percent of Japanese exports is related to the Japanese car industry is a large variable which alone could offset the income lost from importers and imports.

Despite the increase in costs for importers related to the weak yen, many importers might be reluctant to pass on their increased costs to the next in the supply chain including the final consumer.

As a result importers might have no choice to accept lower profit margins which means less room for investments or even salary increases for their employees.

Butt not all wholesalers or suppliers or importers are going to just sit on their increased cost and will pass all or some of their costs to whomever is next in the supply chain and eventually might reach the final consumer.

As such some if not all consumers are going to have less disposable income to spend in the economy, which in turn will slow down economic growth and will further keep the economy from reaching the pre-pandemic level.

Article: 

The average retail gasoline price in Japan has risen to a seven-year high and kerosene prices have also been on an uptrend, reflecting higher crude oil prices.

Japan's core CPI rose 0.1 percent in September, turning positive for the first time in 18 months, as higher commodity prices offset a sharp fall in mobile data charges. It is still far from the BOJ's 2 percent inflation target, in sharp contrast with the United States and some European nations where accelerating inflation has become a concern following economic reopening.

"Monetary policy will be normalized in Japan when the price stability target is achieved in a stable manner irrespective of policy developments in other economies," one member said. "Given that the target has not been achieved, there is absolutely no reason to adjust monetary easing. The Bank should clearly explain this point to the public."

The U.S. Federal Reserve decided last week to scale back its bond-buying program in a shift toward policy normalization.

The summary of opinions was compiled by Kuroda and does not attribute comments to individual members.

Ideas:

This past week Japan and many other advanced economies decided to release their emergency gas/oil reserves as strategy to try and bring down gas prices in their respective economies. 

Of course OPEC might not like what the advanced countries are doing but maybe now they think its an emergency or energy crisis as gas prices are getting to high.

OPEC might not like it because countries are using their reserves and maybe not getting more oil/gas from them instead.

If that doesn't work there is always the idea or price controls, meaning countries can put a temporary limit on how high gas prices can go in the economy. But of course suppliers might be unhappy as they get a higher price from oil producing countries, reducing their profit margins and they can't pass on their increased cost to the next in the supply chain.

The Bank of Japan's goal of  2.0 percent inflation might not happen exactly as they like, now or even in the future. What the BOJ might see and it's probably happening now is a 2.0 percent increase in wholesale and supplier prices but not exactly in overall consumer prices, but maybe only some products or service here or there as produces, suppliers, and wholesalers have been very reluctant to pass on their increase cost to whomever is next in the supply chain.

Consumers in Japan are price conscious and very elastic meaning they are very sensitive to any changes in prices.

Which results in the suppliers, wholesalers, and importers now having smaller profit margins, which means they little to no room to increase future investments and more importantly have very little room to increase salaries of their employees, which badly needed in the Japanese economy.

Consumer spending is not going to increase significantly until consumers/workers can see and feel and increase in their wages which means and increase in their disposable income. 

But then of course they consumers/families have to worry about increased energy costs at their homes, not to mention an increase in gas prices for their cars.

And now with the emerging ot a new virus variant the Japanese government and the BOJ have even more think about about related to getting the economy back to the pre-pandemic level.

Have a nice day and be safe!