Bank of Japan Meeting: Updated Nov. 26, 2021

 https://mainichi.jp/english/articles/20211102/p2g/00m/0bu/033000c

Article:

TOKYO (Kyodo) -- Some Bank of Japan policymakers warned that the fallout of supply constraints hitting the auto sector will spread and last longer than expected, minutes of a policy-setting meeting in September showed Tuesday.

Many members also said the debt woes of Chinese property developer Evergrande Group warrant close attention for the impact they may have on the global economy, with one of them stressing the need for the BOJ to respond promptly if necessary.

At the Sept. 21-22 meeting, the BOJ decided to maintain its ultraeasy monetary policy to support the COVID-19-hit economy. In a post-meeting statement, the central bank acknowledged the impact of supply-side constraints on exports and industrial output, the key drivers of the world's third-largest economy.

Ideas:

Supply chain limitations are not going to effect the autor sector only but many other sectors. These constraints are not gong to go away just because the suppliers are able to get their factors or manufacturing processes up and running again, but because of back orders from those along the supply chain and having to deal with present and future orders.

In the spring and summer of 2021, in a BBC article a German auto CEO or spokesman said the supply constraints might last for a very long time, and its not to be completely fixed anytime soon.

However, it seems that maybe Toyota, as reported in some other articles has maybe solved or fixed its supply problems. 

The Evergrande problems definitely have the potential to cause some kind of global crisis if not attended to correctly. China seems to think it has it under control, but it could easily become a global problem.

No country is an island, meaning no country is alone, even China, as all countries are very much interconnected these days

In 1990 and the Japan Asset and housing market crisis countries were not as connected. In 2007/2008 and the global financial crisis countries had become more connected and the fallout effected many countries globally. 

And then in 2021 countries have become even more connected to each other so the Evergrande situation can easily become a global problem.

Just as the global oil situation now with oil and energy prices spiraling out of control, this too has the potential to become a global situation, if its not there already?

The BOJ, for now, has no choice but to maintain is easy monetary policy as Japan is a long way from getting back to the pre-pandemic level.

And now, the virus situation is again getting worse in many countries and could just as easily, return to Japan just like the other variants have done.

Article:

One member said "supply-side constraints seemed to be taking longer to resolve than initially anticipated by firms and that, with the wide range of supporting industries in Japan's automobile industry, there was also a risk that the adverse effects of these constraints could spread more than expected," according to the minutes.

As automakers were forced to curb production due to a global chip crunch and factory shutdowns in Southeast Asia where COVID-19 cases were surging, some members said attention should be paid to the risk of capital spending being postponed or corporate financing deteriorating as a result, according to the minutes.

Japan has seen the number of daily confirmed coronavirus cases falling in recent weeks and a state of emergency ended at the end of September, raising economic recovery hopes. But a shortage of parts and rising commodity prices are clouding the outlook for export-reliant, energy-scarce Japan.

Ideas:

Supply-side constraints seem to be a global problem and not just a Japan problem. Supply chain problems globally are another challenge that is global and not just related to Japan. 

But the Japan economy is made up of a lot of supporting industries which is like a giant web and its not just the auto industry feeling the constraints but many industries that aren't even related to the auto industry.

There is always the risk of reduced capital spending in an economy, especially in Japan, as companies watch the Japan economy and business conditions very carefully. They might take a wait and see approach to see if the current economic and business conditions are going to improve in the future.

Even though the number of cases has been decreasing, that doesn't mean Japan can now lower its guard, like things are back to normal. Just ask what is going on in the EU countries about lower their guard and what has happened recently.

A continued shortage or parts, which many or some come from other countries as imports might have an effect on the number of Japanese exports. 

And then add in the increasing commodity prices and Japan is nowhere near reaching the pre-pandemic level.

  Of course there is always to continued problem with consumer spending. Consumer spending is not where is should be despite being up to 50 percent of Japan's GDP. Other advanced countries are upwards of 60 percent related to consumer spending and their GPD.

Article:

On the inflation side, however, surging wholesale prices have yet to lead to higher consumer prices on a large scale.

The BOJ is still struggling to accelerate inflation toward its 2 percent target, with sharply lower mobile communication fees weighing on the core consumer price index, a key gauge of inflation.

"One member pointed out that if firms were unable to pass on cost increases stemming from a rise in commodity prices to their product prices, expenditure on business fixed investment and labor costs would be curbed, and households facing stagnant income in turn would consume less," the minutes said.

"This member continued that such a vicious cycle needed to be changed to achieve sustainable inflation."

Ideas:

Companies for many years are well aware that is very difficult to pass on their increased costs to consumers who are risk adverse consumers and also elastic spending consumers. 

Meaning at some point they begin to either look for substitutes that are cheaper or reduce their spending in an already risk adverse spending economy.

But at some point wholesalers might have no choice but to try and pass on some of their increased costs if their profits margins begin to shrink too much.

And yes, because their profit margins are getting smaller and smaller, their workers are probably not going to get any raises whether performance or the normal yearly increase and most likely the companies/wholesalers or whomever, are going to reduce capital spending and investments.

And then the cycle will continue with less extra income for workers/consumers to spend which means less sales and revenue for companies, which might mean less investments from companies and less salary increases for workers and it continues on an on.

And once again, the BOJ should forget about the idea of 2 percent, at least from a consumer spending or consumer demand perspective. Of course there is the possibility of 2 percent inflation on the supply side as supply prices continue to increase.

Have a nice day and be safe!