BOJ To Decrease COVID Funding: Updated Jan. 4

 Source Article: https://mainichi.jp/english/articles/20211217/p2g/00m/0bu/035000c

Article:

TOKYO (Kyodo) -- The Bank of Japan on Friday decided to trim its COVID-19 funding support for big firms as their financing conditions have improved but was in no hurry to move toward policy normalization without accelerating inflation, in contrast to its U.S. and European peers.

With the discovery and spread of the Omicron variant of the novel coronavirus adding a layer of uncertainty over its economic impact, the BOJ decided at a two-day policy meeting to keep its ultraloose monetary easing steps unchanged.

Surging inflation that came with an economic recovery and supply bottlenecks has prodded the U.S. Federal Reserve to signal three rate hikes in 2022 and made the Bank of England the first central bank among the Group of Seven industrialized nations to raise interest rates this week.

Ideas:

The Bank of Japan has no doubt decided on the correct strategies to get through the pandemic as it appears to not be going away, at this time.

The idea of scaling back funding for large companies is also a good plan, as the BOJ can then focus more of its resources on the small and medium sized companies that are still in trouble becuase of the pandemic.

This is not the time to reduce support as there might be many companies, especially in the services sector that are a long way from any kind of recovery.

As to why Japan has not experienced the same inflation challenges that the US and the EU has is a study initself as the Japan economy for many years has not been insynch, or so it seems, in many ways with other advanced ecoomies.

To increase interest rates in Japan might not be in Japan's best interest. But that might just be a problem too, as Japanese businesses and households have gotten too comfortable with the low rate or near zero rate, and when the BOJ does decide to eventually increase the rate could create a whole new set of challenges.

Article:

The European Central Bank is taking a more cautious approach to dialing back emergency stimulus.

"It's true that inflation expectations have been rising a bit," Governor Haruhiko Kuroda told a press conference after the policy meeting. "There may be upside risks (to the inflation outlook) but the situation will be far from those in the United States and Europe."

"We are not likely to make moves toward policy normalization" like the U.S. and European central banks, Kuroda said, with the BOJ's 2 percent inflation target still unattainable.

The divergence of policies among central banks is natural because economic conditions are different and the BOJ's policy stance will not be immediately affected by other countries' policies, the BOJ chief said.

Ideas:

So Kuroda is finally saying that yes inflation is beginning to have an affect in Japan but at this time is not a reason for concern.

Sometimes countries are affected by what some other countries do related to increasing or decreasing interests rates. For example whenever the US Federal Reserve, in the past, increased or decreased its rate, other countries might have followed with its increase or decrease as a way to keep economies insynch with each other. 

Especially if the rate increase or decrease had any affect related to investors in a country as countries were worried that investors would leave a country and to go another country that had a better rate for their investments.

But Kuroda is right that Japan's economic situation is not like the EU or the US at this time, and there is no need to follow what they do just be look like they are dolng the same thing. Each country has its own unique economic circumstances that must be considered.

Article:

As widely expected, the BOJ said it will continue to set short-term interest rates at minus 0.1 percent, while guiding 10-year Japanese government bond yields around zero percent. It will buy exchange-traded funds with an upper limit of 12 trillion yen ($106 billion).

Changes were made to the BOJ's COVID-19 funding support program to buy commercial paper and corporate bonds issued by large firms with a combined limit of 20 trillion yen and to provide cheap funds to financial institutions extending loans to struggling smaller firms.

From April, the BOJ will gradually reduce its commercial paper and corporate bond purchases to the pre-pandemic levels of around 2 trillion yen and 3 trillion yen, respectively.

A six-month extension to September of the fund provision to struggling small and midsize firms is meant to give "reassurances" to companies in need, Kuroda said.

Ideas:

All the different tools and strategies that the BOJ can use is important to keep companies afloat and or keep the economy in its recovery mode. 

But of course the one strategy that is not working, at the moment, is how to get inflation to the 2 percent target level. 

There has been some talk or suggestions that the minus 0.1 percent rate, and maintainig the minus rate is a subtle  way to get companies to use the money they have in the banks to raise the salaries of their employees. 

A very subtle way of saying "use your money or lose it" over the long term. Of course the BOJ will never say that exactly, but the idea or strategy is to get companies to increase salaries of their employees as a way for families and consumers to feel better about their pay and then start to spend it in the economy, as a way to try and get that elusive 2 percent inflation rate.

Of course now Kishida as decided on another approach by giving companies tax breaks if they increase salaries to a certain level.

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Wholesale prices have surged due to higher energy and raw material prices with the impact magnified by a weaker yen. Consumers are gradually feeling the pinch from higher gasoline and kerosene prices and some companies, especially in the food industry, have decided to raise prices. But Japanese firms are cautious about immediately passing on such costs to consumers.

The relatively slow and limited pass-through comes at a time of weak consumer demand and tame wage growth, bolstering the case for the BOJ to retain its accommodative policy for an extended period.

Based on the BOJ's projections, the core consumer price index, which rose only 0.1 percent in October from a year earlier, will likely increase 0.9 percent in fiscal 2022 beginning in April.

"We can't say just because prices are rising, it's good. It's desirable for both wages and prices to increase," Kuroda said.

Ideas:

What Kuroda and the BOJ is saying is there is even though wholesale prices arei increasing and there are some passing on of costs to the next in line, such as consumers, we haven't seen an increase in overall consumer demand. And we won't until we see an increase in wages.

Because companies keep absorbing increases in supply costs they have might have little to no room to increase wages.

Perhaps one reason Japan is not experiencing the inflation that other countries have is becuase of the special relationship companies have with those in the supply chain and they don't want to see the relationships strained by an increase in prices.

But at some point maybe in Japan, like many other features of Japanese culture and business,  the thinking needs to be changed for the good of society and the good of the economy. As companies need to begin to pass on some or all of their costs to the next in the supply chain and be less concerned about the relationships and more concerned about the growth of the economy, or growth of their business. 

But that will take some seasoned personal relatonship strategies, which Japan is very good at being able to explain the need for increasing prices to those in the supply chain.

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Prime Minister Fumio Kishida is stepping up calls for companies to raise wages as part of his drive to achieve wealth redistribution and economic growth.

The lifting of a COVID-19 state of emergency nationwide on Oct. 1 has led to more economic activity, a relief to service providers who have lagged in the recovery from the pandemic fallout. The recovery remains uneven between manufacturers and nonmanufacturers, with smaller firms seen facing more difficult funding conditions.

"Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19 at home and abroad," the BOJ said, sticking to its previous assessment.

Analysts say a potential depreciation of the yen in tandem with the Fed's entry into a rate hike cycle will likely come into focus in the months ahead.

Ideas:

Prime Minister is correct in trying to get companies to increase wages, but the real question is how many companies can or are willing to increase wages even with the tax scheme or incentive being provided by the Japanese government.

And if companies do increase wages, will it be enough to get consumers to get out and spend or use it in the economy.

An unveven recovery is nothing new, meaning an economy is very complex organism and there are always going to be some positives and some negatives. 

Some companies and sectors are going to recover faster than some other sectors or companies. Its not a surprise that the services sector is taking longer to recover as its a customer contact business or sector, meaning some customers might still be weary of getting out and going to all the places they did before the pandemic.

And then there is the tourism side of the services sector which might not recover fully until the international tourism side can get back to some kind of normal or new normal.

As the US Fed begins to increase is rates, and the yen continues to be weak it will be interesting to see just what the BOJ will do with what the affects might be. 

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A weak yen is a mixed bag for Japan as it boosts the overseas profits of Japanese companies when repatriate but it also inflates import costs for energy, food and other items.

For now, Kuroda sees more benefits from the yen's weakness to the economy than negatives.

"Monetary tightening or rate hikes in the United States and Europe won't necessarily lead to a weaker yen. Even if the yen weakens a bit, it will rather be positive for the economy under current conditions," the BOJ chief said.

Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc. expects the dollar to rise to around 116 yen and 117 yen from the recent 113 yen levels after the Fed goes ahead with a rate hike, probably in the April-June quarter.

"If the BOJ can expect the (core) CPI to rise 2 percent, say next year, a rate hike can be justified. But it's not in sight and the CPI may rise 1 percent next year, which may be its peak," Maruyama said.

Ideas:

The BOJ probably is not going to all in line with what the US Fed does as the Japanese and US economy are in different situations. So while the BOJ will watch carefully, they have to think what is best for Japan and not do something just because the Fed does something.

As there are some or many parts of the Japanese economy, the domestic side, not where is should be in terms of overall economic recovery or growth, the BOJ might see a weak Japan yen as as way to help boost the economy, while the rest of the economy tries to catch up with manufacturing and exports. 

Of course there are both postives and negatives to a weak yen, but the BOJ has stated they see more positives than negatives at this time.

So the BOJ is willing for importers to pay higher prices for what they bring into Japan as long as the exporters and export demand is strong globally and the exporters can get more for what they sell and export globally.

Have a nice day and be safe!