BOJ and Households: Updated Feb. 7

 Article Source:   https://the-japan-news.com/news/article/0008198141 

Article:

TOKYO (Jiji Press) — The Bank of Japan’s prolonged ultralow interest rate policy is beginning to affect households in the country.

Although gasoline and food prices continue to rise in Japan, the central bank plans to continue its massive monetary-relaxation measures as its 2% inflation target is still far from being attained.

“There’s no need at all to correct the current monetary easing,” BOJ Gov. Haruhiko Kuroda told a news conference on Tuesday, denying speculation of an early interest rate hike by the central bank.

Ideas:

The BOJ doesn't say exactly how the ultralow interest rate policy is affecing households unless they are talking about how banks are now collecting commission fees as a way to stay profitable during the pandemic.

Energy and food prices are usually measured separately as they are very volatile meaning the prices fluctuate or change a lot and can skew the other items being measured in the conusmer price index, ans as such are measured separately.

But its a good idea to maintain the monetary easing policy as the Japanese economy is no where near the pre-pandemic level with many industries and many companies still not doing very well.

And now with the omicron cases at an all time time, its too early to tell what the affect will be on society and companies.

Are consumers going to cut back on spending in stores or are they to continue to go out as normal.

An interest rate hike at this time or any time soon might cause some serious challenges for the economy, as many businesses and households are nowhere near where they should be as before the pandemic.

Article:

According to the BOJ’s latest outlook, announced the same day, the country’s consumer prices are expected to grow only 1.1% in fiscal 2022 and the same rate in fiscal 2023.

“It’s too early to discuss an exit” from the easing policy, Kuroda said, indicating that the central bank will maintain the policy until it achieves the 2% inflation goal.

Meanwhile, a number of financial institutions are starting to collect commission fees from customers as the BOJ policy is weighing on their profitability.

Ideas:

Something is better than nothing at 1.1 percent increase in consumer prices. But it needs to be understood are the prices increasing because of consumer demand or are they increasing because of cost being passed onto the consumers.

If the 1.1 percent is related to consumer demand that might be a good thing, but if the 1.1 percent is more related to the passing on of costs to consumers, potentially that might be challenge as Japanesae consumers are very price sensitive and might try to find subsitutes at a lower price and or not buy the product as the price as risen too much for them.

At this time, it might not be the best strategy for the BOJ to focus on the 2.0 percent goal as they have been trying to reach it since about 2014. 

So the idea of maitaining the easing policy until the 2.0 goal is reached might be a very long time as consumer spending is always a challenge in Japan.

Its suprising that Japanese financial institutions didn't add a commission fee earlier as even banks need to maintain a certain profit margin. As the key interest rate related to the BOJ was reduced banks, like any other business will find ways to maintain their profit margins.

Its like the Japanease mobile carriers have had to reduce the fees they charge customers mostly based on the Japanese government's ideas or suggestions, mainly from the Suga period, and to maintain their profit margins they will find ways to increase prices on other products or services to maintain their profit margins.

Article:

The BOJ’s negative interest rate, a pillar of its monetary-easing scheme, is imposed on excess funds in financial institutions’ current account deposits at the central bank.

In December last year, MUFG Bank, one of the country’s three megabanks, joined Japan Post Bank, some trust banks and others facing the negative interest rate.

MUFG, as well as other major banks, had avoided the negative rate by actively managing funds. However, a rise in customer deposits due partly to the government’s coronavirus relief measures has forced the bank to hold excess funds.

With no exit in sight from the low interest environment, financial institutions are desperate to secure profits. Among them, moves to pass on costs to customers may grow further, such as introducing account maintenance fees and charging fees for the handling of coins.

Ideas:

The idea of excesss funds was/has always been a subtle strategy of the Bank of Japan and the Japanese government during the Abe era to penalize large companies to try and get them to use some of the excess funds they have to increase the salaries of their employees.

Something like "use your money" or "lose your money" strategy over time. Meaning use your excess funds to increase the salaries of your employees.

The idea was/is as employees/consumers see an increase in their salaries, they will feel better about the extra income they have and maybe save some of it but also use it or spend some of it in the economy meaning consumer spending will increase and the BOJ might begin to reach its 2.0 percent consumer inflation rate.

As banks are businesses too maybe the easy money strategy has left their profit margins too thin and now they have to find ways to increase them with extra fees on customers.

So even banks now are attempting to pass on their cost to many different types of customers.

But it can easily become a trend, as banks and other businesses start to charge fees on anything and all things, which could backfire meaning customers don't like to have to pay a fee for every business transaction, and they might eventually begin to reduce their use of the business and try to find substitutes if possible.

Have a nice day and be safe!

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