OECD and Bank Of Japan And Interest Rate: Updated March 30, 2024.

 

Bank of Japan can gradually raise interest rates from early 2024: OECD

Article Source:  https://mainichi.jp/english/articles/20240111/p2g/00m/0bu/020000c

Ideas:

The Bank of Japan, for the most part, has not followed the advice or actions of any other central bank and or economics organizations around the world, as they seem to follow their own path and not the path followed by others.

The inflation situation has nothing to do with consumer demand or consumer spending and all related to companies passing on their costs to the next in the supply chain, including the final customer.

Wage increases will be important in April of 2024, as the Bank of Japan seems to be relying on wage increases to get the Japanese economy out of its current situation.

But the challenge will be to get all companies involved and not just large Japanese companies.

Once a country or economy starts to increase its debt, like households, it seems very hard to change course. But of course it has been done but the hardships to some groups in an economy.

Japan, might want to reduce it current debt situation, but maybe there might be too many side effects to decreasing the debt. 

If interest rates were to increase it might be a major concern for many in the Japanese economy as borrowing fees could dramatically increase maybe causing the debt to increases even more.

Inflation is both a positive and negative depending on where inflation is coming from. All economies need some kind of inflation has it shows signs of economic activity.

An economy with zero inflation is just as bad as an economy with hyper-inflation, as both kinds are not good for an economy.

Most central banks want to see inflation between 2 and 4 percent, and above or below that level might not be good for an economy.

Japan's inflation, again, is mostly based on companies passing on their costs to the next in the supply chain and not related to consumer demand or consumer, which is what central banks prefer to see in an economy.

Both the Japanese government and the Bank of Japan are relying on companies to end the current situation in the Japanese economy with wage increases. But the challenge with wage increases is that companies have to find a way to pay for the wage increases and will most likely increases prices of their products to pay for the wage increases.

The other challenge is what are small and midsize companies going to do related to wage increases, as in April of 2023, mostly large companies increased wages while many small and midsize companies didn't.

The Bank of Japan might say, as it has already said that it will change its current policy, but just what is it going to do and how much will it change its current policy exactly. The BOJ will watch closely the Japanese economy and wage increases and then decide by how much it will make changes.

The OECD maybe can afford to be more optimistic while the BOJ needs to remain flexible and realistic because any changes in its policy might have real affects on Japanese households and businesses in the future.

While the BOJ has kept borrowing costs low for the good of households and businesses, it has begun to experiment, in the last few months, with increasing Japanese government bonds yields with increases above the 1.0 percent level, as most likely an experiment in small and incremental changes in its ultralow policy.

If the Japanese economy doesn't show much growth or even negative growth in the future the BOJ might not change much but might increase the rate, again, at an incremental level just to test the waters on what effects it might have on the overall Japanese economy.

Again, most governments want to see less spending, but its like a household as emergency spending come up and all budget plans are forgotten.

In Japan's case, Japan has been a high spending government economy for a very long time, and spending habits, even among governments, are not easily curbed as the habit to spend on this program or that program keeps coming up.

It will be a tall order for Japan to run a surplus in 2025 or even balance its budget as again, there are just too many spending programs that it has to deal with in 2024 and maybe in 2025 too.

As an example, the earthquake in central Japan, is another emergency situation that requires the Japanese government attention, and will of course result in more government spending.

All government have emergency funds that don't need parliamentary approval, which means they use the money anyway they want but maybe not the best way of course.

For example, maybe the US has used emergency funds to help the Ukraine war situation, with extra military resources sent to Ukraine.

The Japanese government doesn't need the approval of the OECD to use its supplementary funds and the Japanese government sees what is happening in Japan and the OECD or any other economic organization is not on the ground in Japan to see what is really happening.

Of course supplementary funds, like all funds, need to be spent used the best possible way and not used for special projects to any province or area in Japan to help Japanese politicians win future elections.

But of course, like any country, funds are not always used the best possible way.

Have a nice day and be safe!

Japan PM Wants More Wage Increases: Updated March 8, 2024.

 

Japan PM asks firms to achieve larger pay hikes in 2024 than this year

Article Source: https://mainichi.jp/english/articles/20231225/p2g/00m/0bu/019000c

Ideas:

Most likely, Japanese large companies will increase wages again, but to what level is not sure yet, Last year it was around 3.5% for wage increases.

The problem is with small and midsize companies who don't have much room in their profit margins to increase wages.

Small and midsize companies makeup around 70% of wage earners in Japan, so that is a significant different in wage increase in Japan.

If the they don't increase wages, there is the continued possibility of income inequality among big company wage earners and small company wage earners, and even more than what it is now.

The Japanese economy has been stuck in deflation and a stagnation mindset for many years if not decades.

At the same time, wages in Japan are some of the lowest among advanced nations, which used to be one of the richest, but ever since the asset bubble crash of 1989/1990 its been a downward spiral for the Japanese economy.

Some would suggest Japan grew too fast in the 1980's and never really recovered from the 1989 bubble crash.

When the economy is not doing good, and everyone notices and sees demand decreasing companies begin to cut prices and then at the same time, they don't increase wages for workers.

But the problem is its been going on for a long time with no real end to deflation at the present time, unless, of course Japan companies do significantly increase wages.

The real world of economics and business is not the stock market but the what ordinary people feel and how much prices affect their real lives.

Ordinary Japanese people have got to see and feel wages are affecting them in a positive way with more disposable incomes and also at the same time, decreased prices where they feel good enough to spend in the economy.

It seems the Japanese government and the Bank of Japan is depending on Japanese companies to get the Japanese economy growing again.

Its not a bad idea as wages increase along with a tax cut and a subsidy for low-income groups might help to spur economic growth.

But its got to be sustainable, and not just a one time situation that might give a small boost or spurt but its got to be more and long-term.

Inflation has been running higher than 3.99 percent or 3.00 percent, so many wage earners are still losing out as their disposable income might not be keeping up with inflation. 

As a result, maybe, consumer spending is not where is should be in Japan, and might not increase much, even if wages increase in 2024, in April, as it takes time wage earners to see the affects of wages on disposable income.

Many large Japanese companies have been sitting on big increases in profits for many years, and some say since the 2008 global financial crisis, and up until April of 2023, many companies didn't increase wages that much, if at all.

And yes, small and midsize companies are not able to increase wages and or increase prices, for fear of losing too many customers.

Private consumption of consumer spending has always been challenging in Japan, as Japan is not a spending country like in the US. 

For example, there is the idea of elderly being more prominent in Japan, as Japan is an ageing society, which might mean less spending among the older groups.

And then there is many in Japan who are not working real full-time jobs but contract jobs, with less benefits and also many working part-time jobs too. All of these groups tend to spend less than full-time large companies workers, which only make up about 30 percent of wage earners in Japan.

There needs to be a complete restructuring of the Japanese economy, to get more full-time full benefits workers, including more women in management positions before the Japanese economy can grow at its fullest potential again.

The Bank of Japan is nowhere near the point of normalizing its policy as the Japanese economy has, again, entered into recession, which is two consecutive quarters of negative economic growth.

Most central banks want to see inflation between 2 and 4 percent, as they feel that's a manageable level. but maybe the Bank of Japan wants inflation to be 2 percent and not 3 or 4 percent where its at now, as maybe too many income groups and Japanese households are too stressed out related to inflation.

In recent years, the Bank of Japan has stated or suggested that the Japanese economy is too weak to handle key interest rate increases like in the US or the EU, as maybe the side-effects of the increase in the key interest rate might be too much for many in the Japanese economy.

And again, as the Japanese economy has entered into another so-called recession, the Bank of Japan, most likely, will not doing anything in the near future, or maybe not much in the first half of 2024, until it sees positive growth in the Japanese economy, along with significant wage increases and increased consumer demand.

Have a nice day and be safe!