Bank of Japan: Maintain Ultra-Low Rate Policy:

Source: https://mainichi.jp/english/articles/20221016/p2g/00m/0bu/004000c

Article:

WASHINGTON (Kyodo) -- Bank of Japan Governor Haruhiko Kuroda said Saturday that monetary easing is still needed for Japan to ensure wage growth and achieve its 2 percent inflation target stably and sustainably.

Kuroda again signaled that the BOJ would remain an outlier among major central banks, which have begun to raise interest rates to fight inflation. The yen has plunged to a 32-year low versus the U.S. dollar as financial markets price in that policy divergence.

His remarks at an event in Washington contrasted sharply with those of his British counterpart Andrew Bailey, who indicated that a bigger interest rate hike would be needed despite his government's tax cut plan riling financial markets.

Ideas:

The inflation level in Japan is much lower that what is happening in the EU and the US and so maybe the Bank of Japan can easily maintain is its monetary easing policy.

At the same time there are also some negatives such as the imbalance among currencies especially the Japanese yen and the US dollar which is making the yen even weaker which is causing import prices in Japan to be even higher.

The weak yen is also a positive for Japanese export companies as they are able to get higher sales and profits in the US for example. But it must be remembered that even Japanese export companies feel the effects in the domestic market related to the weak yen and higher import prices related to energy and material costs.

Although the US Federal Reserve has indicated it understands what the strong dollar is doing to other currencies and has indicated it might slow down its rate increases. 

Article:

"Since headline inflation is expected to fall below 2 percent in the next fiscal year, the BOJ is continuing with monetary easing," Kuroda told the event, organized by the Group of Thirty, an independent association of financial leaders and academics.

The recent rise in consumer inflation in Japan is due largely to higher commodity prices and will not be sustainable, Kuroda said, while acknowledging that there have been some "signs of change" in the mindsets of Japanese firms and people regarding prices and wages.

Core consumer inflation surged 2.8 percent in August, and economists say the figure will top 3 percent as early as September.

Ideas:

Other sources have suggested that maybe inflation has begun to peak but they also don't see inflation decreasing anytime soon.

So inflation in Japan might peak or not go any higher but it might not decrease anytime soon.

Perhaps many companies, which have always been reluctant to pass on their costs to the next in the supply chain including the final customer, now probably feel they can no longer just absorb all of their costs and have no choice but pass on some or all of their increase costs.

And maybe consumers are beginning to recognize that prices are going to continue increase and they have to just accept it as is but at the same time try to cut back where possible as wages are not increasing at the same time as is inflation in Japan.

Core consumer inflation, maybe as described might not be the best way to describe what is happening as the inflation now affecting Japan is mostly producer inflation and not consumer inflation which of course can be characterized as increased consumer demand and increased consumer spending.

Article:

The BOJ's diversion from other central banks, including the U.S. Federal Reserve, has been weakening the yen this year. The Japanese currency's relentless fall prompted a fresh verbal intervention by Japanese authorities as it neared 149.

During the event, Bank of England Governor Bailey made the policy contrast starker by saying he does not hesitate to raise rates to meet its own inflation target.

"As we stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August," he said.

The BOE is scheduled to hold its regular policy meeting in early November, while the BOJ's review will take place later this month.

Ideas:

There are always positives and negatives related increasing the key rate or not. For Japan, the positive might be, if possible, that as the key rate remains low companies and families are able to borrow to help with their increased energy costs and or other costs as needed.

Companies especially are able to borrow more easily the meet any future needs they might have. If the rate were to increase that might cause undue stress on companies that need emergency loans for example because of the weak yen and the increase in import prices.

At the same time, maybe in the US and the UK, because the key rate keeps going up its actually causing more harm than good as interest rates and prices just keep increasing kind of like a multiplier effect in that which just multiplies the challenges of increasing the key rate.

Also, at what point does the key rate become too much for an economy, business, and society. Again as the rate increases everything becomes even more expensive which can begin to crowd out investments, consumer spending and other areas or needed economic activity in an economy.

Have a nice day and be safe!