Bank of Japan:

 Article Source:https://mainichi.jp/english/articles/20230410/p2g/00m/0bu/041000c

Article:

TOKYO (Kyodo) -- The Bank of Japan's monetary easing framework designed to keep borrowing costs extremely low is "appropriate" while its side effects should be kept in check, its new chief Kazuo Ueda said Monday in his first press conference.

Ueda, who took the job a day earlier, suggested that a "broader" review of the BOJ's monetary policy over the past decade and beyond may come, at a time when its dovish stance draws a stark contrast with its global peers.

The BOJ governor said he will strive to complete the central bank's long-sought goal of attaining its 2 percent inflation target, despite it being challenging.

Ideas:

While other economies and central banks, such as the US increase interest rates, its maybe appropriate for Japan that it has kept it rate low and the BOJ knows there are multiple side affects to increasing the rate. 

And at the same time, even as the US continues to increase the rate it really hasn't improved the inflation situation in the US like it is or was supposed to do.

While the Bank of Japan and other central banks might choose different paths to combat inflation they are still trying to solve the central problem of how to lower inflation.

In that way they are not in stark contrast just using different tools to try and do the same thing.

The Bank of Japan's goals of 2 percent inflation if more about consumer demand and consumer spending and not so much about increasing wholesale prices. 

So in this case its  a definite challenge to see if it can increase consumer spending to the 2 percent level.

Article:

"Whether to keep the BOJ's yield curve control program depends on economic, price and financial conditions, and we need to compare the merits with the side effects," said Ueda, who is the first postwar BOJ chief hailing from academia.

"Based on the current conditions, it is appropriate to maintain" the yield curve control program, he said.

On his first business day as governor, Ueda visited Prime Minister Fumio Kishida at his office and agreed that there is no need, "for now," to revise a 2013 joint accord. The agreement has served as the basis for the central bank's monetary easing to achieve its inflation goal.

Ideas:

There are always positives and negatives to any policy or policy action and of course a central bank has to decide do the positives of any action outweigh the negatives and or can the negatives be controlled enough to allow the positive actions work in the economy.

Central banks usually don't make sudden or drastic actions and in this case most likely the Bank of Japan is not going to make any sudden changes to what is doing or planning to do.

In this case also as there is now a new governor in the Bank of Japan the new governor doesn't want to cause a loss of face to the outgoing governor by making drastic changes in policy or policy actions. 

Article:

The BOJ has been forced to ramp up government bond buying to keep short- and long-term interest rates within a target range, with its swollen balance sheet posing a formidable challenge to the central bank when it decides to normalize its policy.

Financial markets expect the yield curve control program to be modified or scrapped under the new leadership.

While the BOJ has yet to attain the 2 percent goal stably, headline inflation has remained above that level for nearly a year. The rise has mainly been driven by higher energy and raw material costs exacerbated by the yen's sharp drop, a byproduct of the central bank's dovish stance.

Ideas:

The short and long term bond program is always a challenge to keep it within the correct range.
Of course a swollen balance sheet is going to post significant challenges for the BOJ in the future as what it is going do to.

But at the same time financial markets should not expect too many changes from the Bank of Japan as most likely its not going to make any big changes anytime soon.

An increase in inflation should not be confused with a natural in increase in prices due to increased demand and consumer spending which has not yet happened and may not happen anytime soon until inflation decreases and or wages increase to the point that they are more that inflation.

Article:

"We would like to see trend inflation heightening a bit more, so the outcome of 'shunto' (corporate wage negotiations) has, so far, been encouraging," Ueda said. "That said, we have to see if this growth will be sustained from the viewpoint of achieving the 2 percent target stably and sustainably."

Tepid wage growth is a major reason Ueda's predecessor, Haruhiko Kuroda, justified the retention of powerful monetary easing.

After meeting with Kishida, Ueda said the two shared the view that Japan is no longer in a state of deflation because of the policy steps taken over the past decade in line with the agreement.

Ideas:

Wage increase has been good so far but more needs to be done especially with small and medium sized companies. Big companies have stepped up and increased wages but small and medium sized companies might not have the resources to increase wages.

Japan might not be in state of deflation now but its not exactly in a state of solid economic growth just yet. 

These wage increases, while good, might be have a lag effect, meaning its going to take some time as workers/wage earners feel the effects of the wage increase sand weigh the difference with the inflation of energy and food costs.

It will be interesting to see how much Golden Week and the upcoming Obon season will have on consumer spending in the economy and how much consumes spend during those two holiday periods.

Article:

Ueda said he and Kishida agreed to keep in close communication and implement policies flexibly depending on economic conditions.

In the accord, the BOJ pledged to attain its 2 percent inflation target "at the earliest possible time," while the government vowed to take steps to promote structural reforms and boost Japan's growth potential.

Critics are calling for a review to make the target more flexible, but Ueda has said he does not see the need to revise the agreement.

Ideas:

Policies always need to be checked and revised as needed depending on economic conditions. But the trick is when and how do to them and financial markets want stability and not too much movement in policy changes or actions.

The  2 percent target all depends on inflation and wage growth and how consumer think or feel about what is happening. There is not going to be much in consumer spending until wage growth is more than inflation and until that time consumers most likely are not going spend like US consumers which tend to spend freely compared to the Japanese.

The Bank of Japan and most central banks don't make sudden or drastic changes. Even when they plan to increase rates they always communicate it to the market to make sure there is no surprise. 

Article:

Ueda took the view that the current policy framework he has inherited from Kuroda is complex, adding that he will try to "untangle" it during his five-year term.

His predecessor's tenure was marked by surprises, ranging from the 2016 introduction of a negative interest rate policy and most recently the December widening of the trade band for 10-year government bond yields.

"If we suddenly realize that 2 percent inflation can be achieved in a sustainable and stable manner, and normalize policy accordingly, this will require big changes, which will also cause financial market and economic disruptions," Ueda said. "We need to be able to make the right judgments in advance."

Ideas:

Most likely what Ueda is really saying is he doesn't want to make any major changes at this time and will take his time to decide just what to change and when.

Ueda is right in that financial markets don't want major changes as they might cause too much harm and so Ueda is not going to do anything to cause any major changes that might affect the markets.

What the Bank of Japan wants or needs is no actions that will cause major economic disruptions. While the Japanese economy is not exactly growing at even 2 or 3 percent, it is a very stable economy with little in terms of economic disruptions other than the ongoing inflation situation.

Article:

Ueda studied economics at the Massachusetts Institute of Technology and taught at the University of Tokyo. As a member of the decision-making board at the BOJ between 1998 and 2005, he witnessed the central bank's foray into uncharted territory with a zero interest rate and quantitative easing.

The first policy-setting meeting is scheduled for April 27 and 28, when the BOJ is scheduled to release new economic and inflation forecasts.

Ideas:

If Ueda studied at MIT that means most likely he studied under some very prominent macro-economic professors who specialized in economic growth and development.

In this case he has a very good background in macro policies as MIT was known for developing economy policy and not just economic theory.

The list of prominent scholars at MIT is too many to mention such as Solow, Krugman, and so on and I will add more names later to the list. 

Article:

New deputy governors Ryozo Himino and Shinichi Uchida also attended the press conference, their first since assuming the posts in March.

Uchida, who served as an executive director under Kuroda, said he will aim achieve the inflation target during his five-year term.

Ideas:

Once again the inflation target will not be met until wage growth is enough to meet the demands of workers.

At the same time there needs to be some sort of income equality among women and men in the workplace as women's wages are far less than men. 

There are many structural changes also that need to take place to make sure the Japanese economy can get back to real sustainable growth in the future. 

Until there there are real structural changes the 2 percent target might not be reached. 

Have a nice day and be safe!