Bank of Japan Keep Policy Unchanged: Updated April 19, 2024.

 

Bank of Japan steady on rates ahead of wage talks, more upbeat about inflation

Article Source: https://mainichi.jp/english/articles/20240123/p2g/00m/0bu/035000c

Ideas:

It seems the Bank of Japan is relying heavily on Japanese companies to get the Japanese economy moving again, with the spring/wage increases.

The challenge is for all companies, large, midsize, and small to cooperate and give wage increases. If only large companies participate, and not enough small or midsize companies participate, again, its going to be an unbalanced economy of haves and have nots in the future.

The ultra-easy policy might change, some, in the future, but until the Japanese economy is totally clear of de-flation and stagnation, the Bank of Japan is not going to do anything really drastic anytime soon.

Communication and what language is used by the Bank of Japan is very important, as financial markets seem to hang on every word central banks, around the world say or communicate, so they are very strict on what they and try not to cause worry in the financial markets.

It takes time, a lagging effect sometimes, for high prices to come down, and even though global prices might be slowing, it takes time to reach the relevant markets globally.

Even at 2.4 percent, it might still be too high for some Japanese households, especially fixed income households, who tend to spend more on food than the upper-income groups.

Again, maybe the Bank of Japan is putting too much emphasis on wage increases, as maybe some companies don't have the resources or the means to meet the Bank of Japan's wage goal.

Many small and midsize company's profit margins have been compromised over the last three years because of the pandemic and or increased energy costs, along with increased raw material costs.

But then again, it has been suggested, that some large Japanese companies have been sitting on huge sums of cash instead of using it for their employees or capital investments.

Being less sensitive might mean less elastic, meaning they are not changing much due to increases in material, labor, or energy cost increases.

Most likely, compared to goods-based companies, service-based companies might be more reluctant to increase prices, at this time, as they are concerned about getting their customer base back to normal after the pandemic.

Financial markets are always watching what central banks say and do, as markets can change very quickly on what is said and done.

The Bank of Japan, even when it says its going to end the ultra-low policy, at the same time, its going to continue to monitor the economy and not make any major changes, such as increasing the rate, which might affect higher borrowing costs.

The Bank of Japan is not going to follow the US or the EU will drastic key interest rate increases, as if they did it would go against much of what it has tried to do the past seven years.

Even if and when the Bank of Japan does makes changes in its ultra-low policy, the public or even companies might not see much of the change, as the changes might be so miniscule no one will notice much, in the beginning.

There could be some real side-affects to a key interest rate hike, such as increased loan costs, increased costs for those who have loans, increases loans for companies and so on, all of these and many more could affect extra household income on the future.

Real wages, which is adjusted for inflation, means wages are less because of inflation and households have less extra or disposable income to work with in paying their bills.

A once-in-a-lifetimes situation might not be all that important, as governments and central banks need to be careful not to use too much control or power to influence a market economy.

Yes, some governments have more guidance than other governments such as in the EU, but they've had policies in place for decades, if not longer, and seem to be working.

In this case, perhaps deflation can be used to describe the wage situation of Japanese households where wages of Japanese workers/households have been deflated, have decreased, along with less purchasing power for many years.

In just the last couple of days, in April, the US Federal Reserve has suggested that it might not cut the key rate anytime soon, as inflation in the US economy is not decreasing as fast at the US central bank wants.

As a result, the Bank of Japan might have more time, for example, maybe in the fall of 2024, the US might cut it rate. 

And just the past few days, both the US, South Korea, and Japan has agreed, in communication to deal with the currency exchange rate situation, but exactly how remains to be seen.

Until see some real signs of wage increases from all Japanese companies wages are going to remain deflated, meaning less purchasing power for Japanese households.

Have a nice day and be safe!