Bank of Japan:

 Article Source: https://mainichi.jp/english/articles/20221114/p2g/00m/0bu/029000c#cxrecs_s

Article: 

TOKYO (Kyodo) -- The Bank of Japan will maintain an ultralow rate policy amid heightened uncertainty over the global economy caused by policy tightening in other economies, while keeping close tabs on the financial market impact of rate hikes overseas, Governor Haruhiko Kuroda said Monday.

In a speech to business leaders in the central Japan city of Nagoya, Kuroda stuck to the view that a recent pickup in inflation, driven mainly by higher commodity prices and a weaker yen, will not be sustained, even as the nation has seen a broadening of price hikes by companies.

The central bank has said its 2 percent inflation target should be attained in a stable and sustainable fashion supported by robust wage growth. Despite the headline inflation figure in Japan topping that threshold in recent months, Kuroda has ruled out the possibility of a near-term interest rate hike because inflationary pressure is expected to ease.

Ideas:

The Bank of Japan must know something that other central banks around the world not know and or feel the Japanese economy is so weak it can't handle the side effects of higher interest  rates.

Whatever the reason, there are still side effects related to a low rate, such the variance between the US dollar and the Japanese yen. 

Robust wage growth might not happen as quickly as the BOJ wants as many companies, especially small and medium sized companies have no plans to increase wages at this time.

Article:

"At present, the Bank of Japan deems that it should continue with monetary easing and thereby firmly support economic activity," Kuroda said in his speech.

"By doing so, it aims to provide a favorable environment for firms to raise wages and to achieve the price stability target in a sustainable and stable manner, accompanied by wage increases," he said.

As the BOJ's monetary policy, partly blamed for accelerating the yen's sharp decline of late, has come under greater scrutiny, Kuroda has stressed the need to retain the existing policy framework to foster wage growth, a key factor in achieving inflation supported by strong demand.

Ideas:

There are positive and negative side effects to both increasing the rate and not increasing rate.

The Bank of Japan appears to have chosen the idea that not increasing the rate is the best strategy for the Japanese economy at the present time.

Wage growth is not going to happen until companies feel comfortable with their profit margins and they feel the future looks better regarding demand for their products and their energy and material costs decrease enough they can then see their profits margins get back to some kind of normalcy.

Article:

Monetary tightening in advanced economies like the United States and the eurozone has raised concern about a global economic slowdown. Kuroda said it is necessary to "carefully monitor" the impact of such moves, including adjustments in asset prices and capital outflows from emerging economies.

Market participants have been on alert for any signs of slower policy tightening. In recent days, the yen has risen sharply against the U.S. dollar, in a reversal of its sharp decline to a three-decade low, as markets expect the Federal Reserve to be less aggressive in hiking interest rates.

"The government has intervened in the foreign exchange market multiple times and the abnormally one-sided and rapid weakening of the yen appears to be taking a pause. I believe this, in and of itself, is a very good thing," Kuroda told a press conference after his speech.

Ideas:

Monetary tightening has we see can have some negative side effects including the possibility of a global economic slowdown in the future.

The US Federal Reserve has indicated recently that is rate hikes won't be as strong as the there were. Which good be a good sign for Japan has maybe the variance between the yen and the US dollar might not be wide.

However, the BOJ might need to continue to intervene in the exchange market to make sure the yen pauses from its sometimes rapid increase in value.

Article:

"Commodity prices have already started to trend lower and the strong dollar will not last forever. Under such circumstances, it is certain that the impact of higher import costs will wane," he added.

Most of the recent rise in consumer price inflation came as companies passed on rising import costs, inflated by the weaker yen.

While the yen's rapid decline has created a headache for resource-scarce Japan, the economy likely grew in the July-September quarter, though at a much slower pace than in the preceding three months.

Ideas:

Commodity prices might be trending lower but probably still too much for businesses and consumer overall.

Companies in Japan appear to be less reluctant to pass on their costs to the next in the  supply chain like before as their profit margins become less and less.

The Japanese economy most likely grew in the July-September quarter but it's nowhere near where it should be which is why the BOJ might continuing to keep the current rate low.

Article:

The BOJ chief said the economy will be aided by the emergence of demand that had been depressed by the COVID-19 pandemic and a recovery of inbound tourism going forward.

For the economy to see stronger demand, wage growth will be vital as the recent bout of inflation is weighing on consumer sentiment.

Ideas:

Pent-up demand will help the Japanese economy but for only so long as inflation worries will keep some or many consumers from spending in in 2019 before the pandemic.

Inbound or international tourism will definitely help some but not significantly until China is able to overcome its challenges as the bulk of international tourists to Japan were the middle class Chinese with money to burn.

Again wage growth might not happen when the BOJ wants it to happen as companies have to feel good about the future and about their current profit margins.

Article:

Prime Minister Fumio Kishida is asking companies to offer pay hikes that can keep pace with accelerating inflation when labor-management wage negotiations commence early next year.

"The rises in prices to date will likely be reflected to a considerable extent in the outcomes of the next annual spring labor-management wage negotiations," Kuroda said, while noting that wage developments should be carefully examined.

Ideas:

Prime Minister Kisida keeps asking companies to increase wages but few or not many seem to be able at this time.

The emphasis seems to be on keeping shareholders happy and not so much on keep workers happy. 

Small and medium sized companies have recently come out and said they have no room for wage hike as their profit margins are compromised due to energy and materials cost increases along with the yen's variance with the US dollar.

Have a nice day and be safe!