BOJ Kuroda: Updated April 23, 2024

 

BOJ chief Kuroda opposed watering down 2-yr inflation goal: minutes

Article Source:   https://mainichi.jp/english/articles/20240131/p2g/00m/0bu/012000c

Ideas:

The policy board members' median forecast for the core CPI was a 2.6 percent increase in fiscal 2015. Without the effects of consumption tax hikes, a 1.9 percent rise was forecast. In reality, it marked zero percent growth.

The BOJ releases fuller minutes of policy meetings a decade they are held.Ideas:

In this case, deflation might be a general slowing down of an economy, which describes the Japanese economy as being in a stagnation situation.

The idea of 2 percent inflation was a good goal, but even today, in 2024, the idea hasn't been reached except for cost-push inflation related to companies passing on their costs to the next in the supply chain.

Overall prices increases related to consumer demand and or consumer spending has not been reached just yet in Japan. Most likely, if the wage increases  become a reality then there might be some increased consumer spending especially during the May Golden Week period.

Its been almost ten years since the ultra-low policy when into affect, and Japan is not where it wants to be. That is not the fault of the Bank of Japan or the ultra-low policy, as an economy is very complex with many continuous moving parts, and as a central bank tries fix or manage one part, another part become a challenge too.

Most central banks prefer to have inflation between 2 and 4 percent as they feel that is a manageable level. The Bank of Japan prefers 2 percent, and maybe above the 2 percent level most groups in Japan society will become too stressed such as fixed income groups or low-income groups.

The idea of monetary easing is/was to put more money into the Japanese economy, which would make low cost loans more available for businesses and households as a way to spur spending or business investments in the Japanese economy.

No one can say whether the Bank of Japan failed in its goal of reaching the 2 percent level, as in 2024, they still haven't but that doesn't mean failure as the Japanese economy is very complex and many different situations have come or gone, including the global pandemic which slowed down the economy significantly.

It seems the Bank of Japan has been buying whatever since 2013, as a way to prop-up the Japanese economy and put more money and assets into the economy, as a way to lower costs and get businesses and households to spend and take out loans to use in the economy.

But again, not a failure, as an economy is very complex, many strategies that the Bank of Japan has tried has not really taken hold in the economy has expected. 

What has happened, it seems since the pandemic, is consumer prices in Japan has continued to increase and its not related to consumer spending or consumer demand but global prices and the weak Japanese yen, which has increase import prices in Japan.

The Bank of Japan wants to see more consumer spending and consumer demand, but at the same time, cost-push prices keep going up which causes a lot of stress for Japanese consumers and households, which actually reduces consumer spending and consumer demand in the Japanese economy.

The 2 percent goal was always a challenge and there were many variables in the Japanese economy, which might have prevented desirable inflation reaching the 2 percent level.

In April 2024, wage growth might be the key ingredient that is needed get the Japanese economy moving again, along with increased consumer spending and consumer demand, a long with company investments overall.

Unfortunately some might think deflation is good and needed, but it tends to lower the overall growth of an economy with less spending, less demand, and less business investments and spending overall. 

What is needed, again, is solid wage growth from all companies, large, midsize, and small, which might turn into a multiplier effect, meaning as companies increase wages, workers feel better, and then more spending becomes reality in the Japanese economy, and then the cycle of continuous growth will continue for the present business cycle.

The ultra-low policy was always an experiment that many central banks were not willing to try, but give the Bank of Japan credit for trying, while other banks stuck to the traditional fundamentals of monetary policy.

Maybe it was futile attempt to pull the Japanese economy out of its deflation and stagnation situation, but again, its not a failure to try but failure would have been to do nothing and let the Japanese economy continue stagnate with more deflation.

The financial markets are always focused on the short-term and or what is good today, not what is good tomorrow or next week or next month or the next quarter. So there is always a sense of struggle between what the Bank of Japan thinking what is best for the Japanese economy and what the financial markets think what is best.

It was not too optimistic to set a 2 percent goal, but maybe it related to the time period for 2 years, as again, there were just too many variables, acting at the same time, which might have prevented the Bank of Japan reaching the 2 percent goal in 2 years or even 4 years and so on.

Again, financially markets are only in it for the short-term and not the long-term and anything more than 6 months is too much for them to think about.

All central banks have to be very careful about what they communicate to the public as the financial markets feed off of every word that a central bank or banks say.

One slip-up and markets can go into a tail spin and lose millions of yen in a day. For example if the US Federal Reserve says something that the US Wall Street doesn't agree with, millions can be lost and then it becomes a 24 hour cycle reaching every global financially market from every country in the world for 24 hours.

Central Bank board members don't always agree on what is happening in a economy and how to manage or fix a situation in an economy. But usually, you  don't hear about the difference of opinions and central bank board members need and want to have one voice as a way to calm the markets and not cause stress or chaos.

It seemed, from this article, that the Bank of Japan board members were not all on the same page regarding the 2 percent inflation target and how and when to achieve it.

Perhaps, at the time Kuroda was closely linked to Abe and what Abe was trying to do get the Japanese economy out of its stagnation and deflation situation.

Again, there might have been more than one dissenter on the board of the Bank of Japan, as maybe, they might have all agreed to get the Japanese economy moving, but the trick was what to do, seems to be what some dissenters were upset about.

And its not usual for central banks to communicate positive communications, as again, they don't want to sound too negative that might upset the financial markets.

There should always be balance in the communications that the central banks say, with not too much negative and or too much positive that undershoots the forecasts that are given. The key of course is trying to find the correct balance each time.

Whether good or not so good, holding onto policy meeting notes might have been good as if they are released immediately they might caused too much undue stress in the financial markets overall.

Zero percent growth, during the fiscal 2105 period was normal as that Japanese economy didn't really grow much even though there were many attempts by the Abe government to get the Japanese economy moving and many attempts by the Bank of Japan to do the same thing.

But that has been the state of the Japanese economy for many years, and some would say since the late 1980's or early 1990's when the asset bubble crash happens in Japan.

Have a nice day and be safe!