Bank Of Japan And Inflation: Updated Feb. 14

 Article Source:  https://mainichi.jp/english/articles/20220126/p2g/00m/0bu/034000c

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TOKYO (Kyodo) -- Bank of Japan board members said core consumer inflation will likely move toward the bank's target of 2 percent and believe the trend can continue if wages grow, a summary of opinions at a January monetary policy meeting showed Wednesday.

Still, the goal is to ensure core consumer prices rise above 2 percent in a "stable" manner and the current aggressive monetary easing should be maintained, some members said, shooting down expectations of a policy change in line with the United States and Europe that are moving toward policy normalization to counter accelerating inflation.

In an economic outlook report released after the Jan. 17-18 policy meeting, the BOJ lifted the outlook for the core consumer price index, which excludes volatile fresh food items, for fiscal 2022 from April to a 1.1 percent gain from its previous forecast of 0.9 percent. It changed its view on risks to prices for the first time since 2014, saying that they are "generally balanced," compared with its previous assessment that risks are "skewed to the downside."

Ideas:

Core consumer inflation in Japan seems to always be a challenge as consumer spending is also a challenge in Japan meaning most likely consumer spending is never at its potential to the amount of savings households have.

The key phrase or word is in a stable manner most likely meaning that consumer inflation increases based on an increase in consumer demand and not a large increase in wholesale prices that are being passed on to consumers or the next in the supply chain.

Yes Japan should not follow what the US and the EU are doing as each country and area is unique and has its own specific set of circumstances and what the US does for example might not work in Japan.

It might not be a good idea to increase interest rates at this time as many businesses and households might still be depending on the easy money rates to survive. An increase in the key rate just might increase the burdens on those who have loans now and discourage those who need loans in the future.

The idea that the CPI is generally balanced might mean prices are increasing but there is balance in the economy in terms of the passin on of cost are spread out evenly and not just one sector or one are and consumers a businesses are seeing price increases evenly throughout the economy.

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"From April 2022 onward, the year-on-year rate of change in the CPI may momentarily rise to a level close to 2 percent if the effects of the reduction in mobile phone charges dissipate and other factors simultaneously contribute to pushing up the CPI," one member said.

Another said core CPI is expected to rise to around 1.5 percent temporarily in the first half of 2022.

"That said, whether the rate thereafter will come close to the price stability target of 2 percent and stay at that level with the inflation momentum being maintained depends on the strength in demand, suggested by developments in wage inflation and medium- to long-term inflation expectations," the member said.

Japan's core CPI rose 0.5 percent in December from a year earlier as higher fuel costs more than offset sharply lower mobile data fees.

Ideas:

Most likely by April 2022 most mobile phone subscribers might have gotten new subscriptions and or the novelty of the new rates have worn off of consumers and they aren't rushing to get  the lower rates.

And at the same time, many companies are passing on their increased costs to consumers or the next in line which is going to increase the CPI over time.

The idea or strength of demand is always a challenge in Japan and consumer spending. Japanease households, as has been reported are sitting on a record level of savings or some households. But maybe there is still a large part of the Japanease population that is still recovering from the pandemic.

It remains to be seen just what companies are going to do in April 2022 with regards to wages.While Prime Minister wants to see a 3+ percent increase in wages, just how many companies are going to do it remains to be seen.

The idea is of course as workers/consumers get wage increases they will begin feel better about their wages and maybe save some of it and then spend some of it.

This can have a layered multiplier effect meaning as workers/consumers get wage increases they will begin to use the increased disposable income in the economy meaning of coures not only do they benefit from the wage increase but many areas of the economy will also benefit as more consumers/workers use it spend in the economy. 

But there is still the possibility of higher fuels costs both for households and businesses being a constraint on consumer spending and a constraint on what businesses might want to do in the future.

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BOJ Governor Haruhiko Kuroda has said the recent rise in core CPI is mainly due to higher commodity prices, casting doubt on its sustainability without stronger wage growth. He told a post-meeting press conference the bank was not discussing raising interest rates or changing the current accommodative policy.

"Since it will still take time to achieve the price stability target of 2 percent in a stable manner, there has been no change in the bank's basic thinking that it should continue with the current powerful monetary easing. It is important for the bank to firmly maintain its policy stance and clearly communicate it to the public," one member said.

Annual wage negotiations between management and labor unions will shift into full gear toward March amid calls by Prime Minister Fumio Kishida for aggressive pay hikes by companies that have recovered from the COVID-19 pandemic. Higher wage growth is seen as important for consumers to manage the impact of more pricey goods and services.

Ideas:

Commodity prices affect not only businesses but also households. Consumers or households might see a double affect of commodity prices. They might see an increase in home energy prices and gasoline prices and then they might see an increase in prices in other areas as businesses attempt to pass their costs to the next on the supply chain meaning maybe consumers.

Which of course means less disposable income or less extra income to use and spend in the economy, which of course means a wage increase is even more important for the Japanese economy to grow. 

Here is the key phrase; "since it will take time" seems to be the Bank of Japan's main strategy phrase as they have been attempting since 2014, or around there to reach the 2.0 percent level of inflation.

Wage hikes might be very important for households and consumers but how many companies are going to do it and how many companies are actually recovered from the pandemic. For example how many if any service type businesses have recovered to the point of being able to even think about wage increases.

For example has JAL and ANA recovered enough to even think about wage increases or are they still in some kind of survival mode and international travel has not resumed enough to the point of moving past the breakeven point between profitability and losses. 

And can they earn a profit in 2022 on just domestic travel especially if the are not flying at the capacity needed to breakeven or move into the profitabilty zone.

Consumers and houesholds, if possible, will seek out subsitutes or alternatives if prices begin to get too high. As household energy prices increase, and gasoline prices continue to increase, along with supermarket prices, consumer spending might not be at the level that the Bank of Japan wants or needs for the economy.

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Opposition party lawmakers have been vocal about the negative impact of higher inflation as prices are increasing when wages are not, with them particularly taking aim at the depreciation of the yen driven by the BOJ's monetary easing program that has caused import costs to increase.

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

Ideas:

Opposition party lawmakers, globally, are always trying to find areas where they can contend with what the majority party is doing. 

So the opposition party has siezed on the idea of inflation and wages, when Prime Minister Kishida has already been trying to get companies to increase wages as inflation is also increasing.

Perhaps it would be a good idea in the diet debates on NHK to for the oppostion party to give their ideas to help the economy, which they have done with Prime Minister Kishida always nodding his head to show he understands what the opposition party is saying. 

The Bank of Japan as many central banks,at least in the open, don't interfere in the movement of the exchange rates currencies and for the most part let them float as is.

One of the reasons they don't interefere in the exchange rate floating as they don't want to be seen or labeled as a currency manipulator and be sanctioned or similar ideas related to the US and how they view what some Asian countries do with their currency.

What the Japanese government has done is give subsidies to oil distrubutors and importers as an incentive to not pass on their costs to the next in the supply chain.

Of course the weak yen has been positive for exporters but a negative for importers. While not manipuating the yen directly all or most central banks have a set of tools that they can indirectly move the currency in one direction or another without actually directly manipulating its currency. 

Exports in Japan have been a powerful tool to help and grow the economy and as such the Bank of Japan is going to keep an easy money policy for the time being until it sees the domestic economy begin to get back to the pre-pandemic level and the inflation rate at or near the 2.0 level.

Have a nice day and be safe!