Bank of Japan: Update Jan. 11

 Source:  https://mainichi.jp/english/articles/20211227/p2g/00m/0bu/016000c

Article:

TOKYO (Kyodo) -- BOJ policymakers acknowledged rising inflationary pressure in Japan from higher energy and raw material prices, with their focus on price-setting behavior by companies, a summary of opinions at their December meeting showed Monday.

Such a rise, however, does not warrant a change in the current monetary easing steps with the BOJ's 2 percent inflation target still far off and a "premature" adjustment of policy would hurt economic recovery, one member said.

At the Dec. 16-17 policy-setting meeting, the Japanese central bank made no change to its monetary easing policy. But it decided to scale back COVID-19 funding support for large companies, gradually reducing the purchase of commercial paper and corporate bonds as their funding conditions have been improving.

Ideas:

Its good that the BOJ has decided not to change its approach as it knows it could hurt the current economic recovery as there are many families and businesses that are sitll not recovering or even close to it, especially if they are related to the service sector and even more especially if they are related to the tourism industry.

The 2.0 in inflation target is so far off, despite the increase in costs/prices of energy, raw materials, and even food prices, that the BOJ maybe should forget about the inflation target at this time and continue to focus on helping those businesses and familes that need help and worry about the inflation target at the time when the pandemic challenges have passed and the Japanese economny is back in full recovery.

Big companies most likely don't need to help that small and medium sized businesses do at this time, and the BOJ should focus all of their rerources on helping those.

Article:

"Since producer prices have continued to increase at a historically high pace, mainly on the back of a rise in raw material prices, the underlying upward pressure on consumer prices also seems to have been increasing gradually," one member said.

Another said, "It is necessary to examine whether the current assessment that risks to prices are skewed to the downside will remain appropriate, considering, for example, the recent rises in inflation expectations and raw material costs," in the next economic outlook report due out in January.

Wholesale prices have surged due to higher energy and raw material costs but the rise in core consumer prices, a key gauge of inflation, has been moderate, with a 0.5 percent gain from a year earlier in November.

Ideas:

Just perhaps if Japanese companies were to pass on their costs to the next in line, most likely to consumers, then maybe the inflation level or rate in Japan might be similar to what is happeing in the US or the EU.

But since Japanese companies seem reluctant to pass on their costs to the next inline, most likely consumers, the rate is going to remain low.

Perhaps because of the special relationship among companies and consumers and because of the sensitivity of Japanese consumers to changes in prices, companies don't want to disrupt the special relationship with their customers.

Which then places an some contraints on companies such as not increasing the wages or salaries of its employess or investing in projects or needed areas, because there profits margins are too low to do anything.

But at some point companies might need to change just like Japanese society some parts need to change to meet the demands of the 21st century.

Article:

The prospect of inflation not hitting its 2 percent target soon makes the BOJ one of the last major central banks to shift to policy normalization.

"Even when the bank completes the whole program, this will not mean in any sense a reduction in monetary accommodation," the BOJ said, referring to the COVID-19 funding support program, which also includes the provision of cheap funds to financial institutions extending loans to small and midsize firms.

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

Ideas:

But one area that should not change is the BOJ's approach to providing funds to banks to help small and medium sized firms as the pandemic is far from over and most likely many of them are in the services sector which is far from being in a recovery mode.

Perhaps there should be a complete paradigm shift in looking at how the Japanese economy really works and not rely on conventional economic theory or monetary theory and try to figure out, despite some major flaws the Japanese economy, it continues to just roll on and seems to be one of the most stable economies in the world.

For example inflation barely reaches 1.0 if even that while most central banks try to keep inflation in the 2.0 to 4.0 range.

Being below 2.0 might mean something is wrong or something is not correct, or there are major problems that need to be fixed.

Yes there is the salary and wage challenge, yes, there is the consumer spending challenge, and yes, there is the government debt to GDP ratio, yes there is the ageing challenges, but the Japanese economy just keep moving on despite some major challenges.

Have a nice day and be safe!