Bank of Japan: Updated Jan. 22, 2024

 

Bank of Japan members more confident about inflation, stimulus tweaks floated

Article Source: https://mainichi.jp/english/articles/20231109/p2g/00m/0bu/031000c

Article:

 TOKYO (Kyodo) -- Some Bank of Japan policymakers have grown more confident about

 wage growth and the prospect of attaining the central bank's 2 percent inflation target, with one member calling for scaling back monetary stimulus from its maximum level, a summary of opinions showed Thursday.

The opinions were expressed at an Oct.30-31 policy-setting meeting where board members retained the existing monetary easing framework but decided to allow long-term interest rates to rise further above the previously rigid ceiling of 1.0 percent.

Citing recent inflation figures and comments by corporate executives about pay hikes, one member said, "The likelihood of achieving the price stability target of 2 percent in a sustainable and stable manner seems to have risen further since the July (meeting)."

Ideas:

The Japanese economy and households might still be in a not so good situation, but maybe the trend is changing and the Bank of Japan can now see light at the end of the tunnel.

The BOJ might not completely change is ultralow policy but most likely do it in very small steps, to test the Japanese economy.

The key will be in April 2024 with wages and just how significant they are which is going to determine what the BOJ will do in the future.

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"Therefore, it will be necessary for the bank to gradually adjust the degree of monetary easing down from its maximum level," the member said.

Other members also underscored the importance of wage growth in achieving the BOJ's price goal after surging import costs for energy and raw materials accelerated headline inflation. The focus is on the annual "shunto" wage negotiations between labor unions and management next spring.

One member pointed to a change in stance among firms, which have left wages unchanged since the bursting of the bubble economy in the early 1990s.

Ideas:

If wages haven't changed that much since 1990, that is a very long time of course resulting in stagnation and deflation.

It has been suggested in other articles, that many Japanese companies have been sitting on hug sums of cash and not used it for their employees.

Its also been suggested, that Japan's GNI is now one of the lowest among advanced economies when at one time it was one of the highest.

One can only wonder why its taking so long for Japanese companies to finally begin to give significant wage increases. 

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"The second half of fiscal 2023 will be an important period for determining whether the (inflation) target will be achieved," another member said, expecting the next fiscal year to see faster wage growth.

Under the yield control program, short-term interest rates are set at minus 0.1 percent and 10-year Japanese government bond yields are guided to "around zero percent."

Ideas:

Japan's fiscal year begins in April, so the second half starts in October. Inflation is around 3 to 4 percent depending on which metric you look at. So it much higher than the 2 percent that the Bank of Japan wants to see.

The problem with wage growth, again, is 70% percent of wage earners don't work for large Japanese companies, and last April 2023, most of the wage increases came from large Japanese companies and not small and midsize companies.

It will be interesting to see if Prime Minister Kishida can convince small and midsize companies to also increase wages. Even if they don't increase wages as much it a good start for the 70% of wage earners who don't work for large companies.

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With a future exit from current monetary policy in mind, the BOJ should let market forces decide on prices and improve liquidity in bond markets, one member said, adding that it should provide communication so the market can prepare for "a world where interest rates exist."

The summary of opinions was compiled by Governor Kazuo Ueda and comments were not attributed to individual members.

Ideas:

It seems, for very long time, the Japanese economy has fallen into the trap of low or zero interest rates and the Japanese market may have become dependent on the zero rate and market forces haven't been able to move correctly.

If the Bank of Japan does eventually to loosen its ultralow policy, it needs to be careful with any shocks that might occur as the Japanese economy has been in the ultralow situation for very long time.

It might takes months or even a year for the Japanese economy to adjust to any changes in the BOJ policy.

Have a nice day and be safe!