Bank of Japan Policy Change: Ideas Later

 

Bank of Japan turns page on Abenomics, giving reeling Kishida election hope

Article Source:  https://mainichi.jp/english/articles/20240321/p2g/00m/0bu/008000c

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TOKYO (Kyodo) -- The Bank of Japan's decision to end its protracted period of unorthodox monetary easing gives Prime Minister Fumio Kishida an opportunity to move the nation on from the legacy of "Abenomics" and provides his deeply unpopular administration a degree of momentum ahead of an upcoming general election.

Kishida has pushed his Liberal Democratic Party's biggest faction, formerly led by the late Shinzo Abe, to disband after a political funds scandal came to light in late 2023, while urging influential lawmakers of the group to resign from key Cabinet and LDP posts.

The LDP, which has been in power for most of the period since 1955, has come under intense scrutiny as some of its groups, including the Abe faction, neglected for years to report portions of income from fundraising parties, creating slush funds in the process.

In February, Kishida abruptly announced his intention to appear before the House of Representatives political ethics committee with the media in attendance, in effect forcing executives of the Abe faction to do the same and front the televised hearings.

An LDP lawmaker said that by undermining politicians who were close to Abe, Kishida has shored up his chances of securing a three-year second term as leader of the ruling party at its presidential election around September, despite his Cabinet's chronically low approval ratings.

On Tuesday, the BOJ scrapped its negative interest rate policy in its first rate hike in 17 years, overhauling the central bank's unconventional monetary easing framework of the past decade designed to end deflation.

"It has come into view that our 2 percent price stability target can be achieved sustainably and stably, with a virtuous cycle of pay and price increases confirmed to be in motion," BOJ chief Kazuo Ueda said at a press conference after its two-day policy meeting.

The bank's aggressive monetary easing was one of the three pillars of the Abenomics deflation-fighting program during Abe's more than seven-year tenure as prime minister from 2012, along with massive fiscal spending and an economic growth strategy.

Monetary easing of a "different dimension" by the BOJ was a "symbol of Abenomics," the LDP lawmaker said, adding the central bank's decision "pleased" Kishida as it signaled the "complete termination" of Abe policies that were still in place.

In February 2023, the Kishida administration presented Ueda, a professor emeritus at the University of Tokyo, to parliament as its candidate for BOJ governor, replacing Haruhiko Kuroda, in its first leadership change in 10 years.

In April that year, Ueda, a former BOJ board member, became the first central bank governor hailing from academia in postwar Japan. He was expected to address the side effects of protracted monetary easing taken under Kuroda, appointed by Abe.

Kuroda's successor was also set to play a role in restoring the independence of the central bank, which has been undermined by apparent interventions by the government in monetary policy decisions under Abenomics.

A government source said Kishida, who is skeptical about whether drastic monetary easing would help end deflation, hoped Ueda, despite this touted independence, would revise policies that caused the Japanese yen's plunge, driving up import prices and eroding consumer sentiment.

After meeting with Ueda on Tuesday, Kishida described the BOJ's latest policy shift as "appropriate," saying it "has stepped into a new phase to generate positive economic outcomes" while "maintaining an accommodative environment."

Since he took office in October 2021, Kishida has concentrated on implementing measures to prod Japanese companies to raise salaries, saying the goal of his government is to realize wage growth that exceeds price hikes.

The Japanese Trade Union Confederation said in a preliminary survey earlier this month that domestic firms agreed to wage increases averaging 5.28 percent at this year's negotiations with labor unions, the sharpest rise in more than 30 years.

The Kishida administration has begun considering whether to declare an official end to deflation in the near future, given the recent robust corporate profits and positive wage momentum, the government source said.

Tatsuhiko Yoshizaki, chief economist at the Sojitz Research Institute, said Kishida has been eager to claim the end of deflation as an accomplishment of his government, as approval ratings for his Cabinet have continued to lag badly amid the LDP's slush funds scandal.

After declaring the "perfect end of deflation," which Abe was not able to do, Kishida may "dissolve the lower house for a snap election ahead of the LDP presidential race," said Yoshizaki, who is well-versed in Japanese politics.

Abe, Japan's longest-serving prime minister, headed the largest faction within the LDP after stepping down as the leader for health reasons in September 2020, but he was fatally shot during an election campaign speech in July 2022.

Meanwhile, former BOJ board member Takahide Kiuchi, who is now executive economist at Nomura Research Institute, said the central bank's departure from its ultra-loose monetary policy indicated that the power of the Abe faction has waned.

Abe faction lawmakers called on the BOJ to uphold its radical easing as a "legacy" of the former prime minister, which prevented the central bank from normalizing monetary policy even after Ueda became governor, he said.

The slush funds scandal, however, "weakened the voice" of the Abe faction, giving the BOJ flexibility and allowing the central bank to abolish its negative interest rate policy and yield cap program, two major remnants of Kuroda's era, Kiuchi added.

Editorial: Bank of Japan Policy: Ideas Later

Editorial: Bank of Japan's rate hike a chance to break away from economic complacency

Article Source:  https://mainichi.jp/english/articles/20240320/p2a/00m/0op/017000c

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The Bank of Japan (BOJ) has decided to lift its negative interest rate policy, and raise the target for short-term interest rates from the previous minus 0.1% to around 0 to 0.1%. It was the first time in roughly 17 years for the BOJ to hike interest rates, the last time being in February 2007.

The BOJ's move is a significant shift from its bold "monetary easing of a different dimension" that continued for over a decade. For Japan, it is a major step toward the revival of a "world with interest."

The central bank policy of holding long-term interest rates to extremely low levels will also be abolished. Additionally, the BOJ will halt purchases of exchange-traded funds (ETFs), which include large numbers of stocks.

Initially, the bold monetary-easing policy brought higher stock prices and helped to alleviate the yen's strength, but recently, a distortion of market functions and other adverse effects had stood out. Unilateral easing is now finally being corrected.

Adverse effects of prolonged policy need to be verified

The BOJ had explained that it would continue its easing policy until it saw sustained inflation of 2% accompanied by wage growth.

Due to the global surge in material prices, among other factors, the rate of increase in consumer prices has continued to surpass that target.

Meanwhile, during spring wage negotiations this year, figures compiled by the Japanese Trade Union Confederation showed the rate of wage increases averaged over 5% -- a high level.

The BOJ has been monitoring trends in prices and wages, and it judged the situation where both wages and prices were rising to be a "virtuous cycle." BOJ Gov. Kazuo Ueda said in a news conference, "The easing policy of a different dimension has served its role."

 largely due to overseas factors such as continuing high energy prices; the increase cannot be authoritatively attributed to Japan's bold monetary easing.

The easing policy was spearheaded by former BOJ Gov. Haruhiko Kuroda, who took office in 2013, with "Abenomics," the economic policy mix of the late Prime Minister Shinzo Abe, at its center. They boasted that the 2% target would be achieved "in about two years," but prices did not rise at all.

With deepening desperation, the BOJ outlined new easing policies one after another, and even went ahead with experimental policies that other central banks overseas had retreated from, such as negative interest rates. We must not turn a blind eye to the side effect of these unorthodox policies.

As a result of its continuing large-scale purchases of government bonds to lower long-term interest rates, the BOJ now holds more than half of outstanding government bonds.

Over the past few years, the excessively weak yen has led to increased import costs and has put pressure on the finances of households and small- and medium-sized companies. If the side effects outweigh the merits, then the policy can by no means be called effective.

The BOJ has been analyzing easing policies since the late 1990s. It should also earnestly analyze the pros and cons of the bold monetary easing measures Japan has seen.

A bigger issue is that the government and industries have gotten comfortable with the ultralow-interest rate environment and have postponed necessary reforms.

The aim of Abenomics was to boost the economy through three "arrows" combining monetary policy, fiscal stimulus through government spending and growth strategies. In actual fact, however, the nation saw repeated pork-barrel spending and there were few growth strategies directly linked to strengthening industrial competitiveness and expanding domestic demand.

Irresponsible spending did not stop even after the launch of Prime Minister Fumio Kishida's administration. That's because the burden of managing public finances by relying on government bonds is light as long as bold easing continues.

Consideration of pain inevitable

Companies that benefitted from the correction of the high yen prioritized cost-cutting measures, and simple profit-hoarding management stood out. Postponing investment in facilities and improvements to employee compensation packages has contributed to a decline in Japan's international competitiveness.

Monetary policy is supposed to support the economy behind the scenes. Only when the government sets out clear growth strategies, and when companies make efforts in technological innovation and toward improving productivity, will the path to a robust economy open. With the latest policy change, Japan should be prepared to break away from a "lukewarm" state.

There is a risk that the resumption of interest rate hikes after about 17 years may unsettle the market and the public. Efforts must also be made to ease the impact of economic fluctuations.

Ueda stressed that "an accommodative financial environment will continue for the time being," but financial institutions are expected to accelerate interest rate hikes.

While there are merits for those with savings, higher interest rates on mortgages and loans will increase the burden on borrowers and could act as downward pressure on the economy.

Even if the BOJ's inflation target is realized, we must avoid a situation where a large number of people cannot bear the increased burden. The government should put effort into policies to alleviate the "pain" of households and companies and work to correct disparities.

In a "world with interest," the true strength of Japan's economy, including fiscal discipline, will be tested. We must make this an opportunity for the economy and society as a whole to emerge from long-term stagnation.

BOJ To End Negative Rate: Ideas Later

 

BOJ ends negative rate, shifts from unprecedented monetary easing

Article Source::https://mainichi.jp/english/articles/20240319/p2g/00m/0bu/027000c

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TOKYO (Kyodo) -- The Bank of Japan on Tuesday scrapped its negative interest rate policy, in a major overhaul of the central bank's unprecedented monetary easing framework of the past decade that aimed to end deflation.

In its first rate increase in 17 years, the BOJ decided at a two-day meeting to guide short-term interest rates within a range of zero and 0.1 percent, judging that its goal of attaining stable 2 percent inflation is "in sight."

Of the nine members, seven supported and two were against it.

Since 2016, the BOJ has set short-term interest rates at minus 0.1 percent, making it less attractive for financial institutions to leave excess funds at the central bank. The goal was to prompt commercial banks to increase lending and investment in order to rejuvenate the economy.

The Policy Board also decided to scrap its yield cap program, under which long-term interest rates have been at extremely low levels, and end its purchases of assets such as exchange-traded funds.

The changes signal the beginning of policy normalization that analysts say will likely be slow at best amid uncertainty over the inflation outlook.

Heading into the latest policy meeting, BOJ board members have sounded more confident about the probability of achieving 2 percent inflation, supported by wage growth.

The preliminary reading of a 5.28 percent pay hike offered by major Japanese firms on average during this year's labor-management negotiations has apparently boosted hopes for a virtuous cycle of pay and price increases. The pace is the fastest in over three decades.

BOJ chief Kazuo Ueda has indicated that the negative rate and yield control program will be reviewed when the inflation goal comes into view. Still, he has shot down expectations that the central bank would raise rates rapidly, saying financial conditions will remain accommodative.

Ueda is scheduled to hold a press conference later in the day. The governor's remarks will be scrutinized for any clues about future policy changes, which would also impact financial markets.

Despite market expectations that the negative rate will be removed, the yen remains weak against the U.S. dollar, partly because the gap in monetary policy between Japan and the United States remains wide.

The U.S. Federal Reserve is scheduled to hold a two-day policy-setting meeting starting Tuesday, and analysts expect it to end its aggressive monetary tightening to fight soaring inflation and start cutting rates sometime this year.

Inflation Dents Cherry Blossom Viewing: Updated May 8, 2024.

 

Inflation dents budgets for cherry blossom viewing in Japan

Article Source:  https://mainichi.jp/english/articles/20240316/p2g/00m/0na/009000c

Ideas:

Maybe cherry blossom viewing becomes an outing that might use a lot of money, whether planned or not planned. Such as stopping at the conbini, stopping at tourism places, taking taxis or buses, or subways to get what you want to go.

And it takes time too. For example, watching NHK or another Japanese station it showed the wait time at major attractions in Japan at for example 80 minutes, and some at a 2 hour wait.

It possible, that some Japanese citizens might feel or think there are just too many people out and about especially during the Golden Week period, and choose to say at home, instead of going out to the crowded places.

This shows, maybe, that the wage increases of April 2023, was not enough for most households in Japan, as inflation is a weekly/monthly situation while wage increases just happen once a year.

There is also the possibility that the cherry blossom viewing situation just isn't the same as it was many years ago, as maybe less households see it a yearly seasonal ritual that they have to do as part of Japanese society.

Perhaps just seeing the cherry blossom near their homes is enough for some people and they don't feel the need to take any extravagant trips to see cherry blossoms.

I remember, in 2020 or 2021, someone posted twitter pictures or short twitter clips of cherry blossom viewing in a Tokyo park and there was tape to prevent people from going there but they still went there.

Of course cherry blossom in Japan will never go away but maybe it will be de-emphasized as people just think of it as nothing that special, and they can view cherry blossoms just around where they live.

And yes, quite possibly, that the pandemic, like it has for many things, has changed what people do and see, as they no longer need to so certain things like they used to.

As a westerner, cherry blossom viewing doesn't hold the same importance as it is for a Japanese person, although there are a lot of cherry blossoms in many cities in the US too.

But it is an important part of Japanese society and Japanese culture and should be respected for that.

The only concern I have is all of the foreign tourists who go to Japan and try to see the cherry blossoms but don't show respect in Japan and are not so polite and don't follow Japanese customs or manners.

Have a nice day and be safe!

Japan Firms and Wage Hikes: Ideas Later

 

Japan firms offer 5.28% wage hike, biggest in over 30 yrs: survey

Article Source:  https://mainichi.jp/english/articles/20240315/p2g/00m/0bu/067000c

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TOKYO (Kyodo) -- Japanese firms agreed to wage increases averaging 5.28 percent for this year's negotiations with labor unions, the Japanese Trade Union Confederation said Friday in a preliminary survey, marking the sharpest rise in more than 30 years.

The pay hikes, which have fueled expectations that the country's economy may finally move out of chronic deflation, will likely pave the way for the Bank of Japan to decide to phase out its ultraloose monetary policy.

The central bank has said it will study the level of wage increases to consider whether it should scale back stimulus measures. The BOJ is scheduled to hold a two-day policy meeting starting Monday.

The average wage increase surpassed the 5 percent mark for the first time since 1991 and translates into a 16,469 yen ($110) rise per month, said the confederation, also known as Rengo, which had aimed to achieve hikes averaging 5 percent or more this year.

The survey covered 771 of its member unions, which reported their negotiation results by Friday morning.

Among them, 358 unions at small and medium-sized firms won themselves pay hikes averaging 4.42 percent, or 11,912 yen.

As for nonregular workers, hourly wages will increase by 6.47 percent, or 71.1 yen, the biggest rise since comparable data became available in 2013.

Major firms such as Toyota Motor Corp., Nissan Motor Co., and Hitachi Ltd. met their unions' requests in full in this year's negotiations, against the backdrop of soaring prices weighing on households.

"This is an appropriate start for a turnaround for Japan," Rengo Chair Tomoko Yoshino said at a press conference. "We have to realize wage hikes for everybody, including those who work at companies without unions."

BOJ and Interest Rates: Ideas Later

BOJ set to end negative interest rates at next week's meeting

Article Source:  https://mainichi.jp/english/articles/20240315/p2g/00m/0bu/062000c

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TOKYO (Kyodo) -- The Bank of Japan is expected to end negative interest rates at its monetary policy meeting next week, sources close to the matter said Friday, in what would be the first hike in 17 years and a major departure from years of unorthodox monetary easing.

The development reflects growing confidence among policymakers that a virtuous cycle of wage growth and price hikes is in motion, a requisite for the BOJ to normalize its policy as the outcome of this year's labor-management pay negotiations is expected to be the best in about three decades.

The BOJ is scheduled to hold a two-day policy meeting from Monday amid market expectations that the central bank will remove the negative rate, which has been in place since 2016.

BOJ chief Kazuo Ueda has said a review of the existing monetary easing framework, including the negative rate and yield cap program, will take place if the central bank's 2 percent inflation target, accompanied by wage growth, comes into view.

The BOJ has been keeping borrowing costs extremely low to support households and businesses and to stimulate the economy.

It has set short-term interest rates at minus 0.1 percent, effectively charging banks for parking some of their excess funds at the central bank.

While the country's inflation rate has remained elevated due largely to higher import costs, the BOJ has loosened its grip in recent months on long-term interest rates so that they better reflect economic conditions. The benchmark yield on 10-year Japanese government bond yields can now rise above 1.0 percent.

Even if the negative rate policy ends, however, Ueda has stressed that monetary conditions will remain accommodative, signaling that the BOJ will not rush to raise interest rates.

The BOJ will likely keep interest rates around zero percent, by guiding the overnight call rate, which is used by banks when they borrow and lend from each other, within a range of zero to 0.1 percent, according to the sources.

The BOJ's powerful monetary easing introduced during the time of Ueda's predecessor Haruhiko Kuroda formed a key pillar of the "Abenomics" economy-booster program, which lifted stocks and significantly weakened the yen.

As a result, the central bank's balance sheet has greatly expanded, and it currently owns about half of the outstanding Japanese government bonds after its aggressive purchases that it said were designed to achieve stable inflation.

The BOJ will likely continue with its bond buying to prevent a spike in long-term interest rates that would do harm to both businesses and households, but end its purchases of exchange-traded funds, the sources said.

BOJ policy makers have recently sounded more optimistic about the prospect of attaining 2 percent inflation, with board member Hajime Takata saying in late February that the goal is "finally in sight."

Major Japanese firms agreed to raise pay by an average of 5.28 percent, the fastest pace in 33 years, according to the first tally of the results from this year's "shunto" negotiations. It was announced Friday by Rengo, the umbrella group of Japanese trade unions.

Wage hikes are viewed as crucial by the BOJ as the recent bout of inflation, which has remained above 2 percent for nearly two years, has weighed on private consumption.

The government, for its part, has said Japan faces a "golden opportunity" to formally declare an end to deflation, or prices continuously falling, as Prime Minister Fumio Kishida steps up calls for Japanese firms that have booked robust profits to reward employees with higher wages.

The BOJ has been careful not to prematurely scale back monetary stimulus, swimming against a global tide of monetary tightening that saw the U.S. Federal Reserve and the European Central Bank rapidly raise interest rates to tamp down inflation.

The cautious stance has highlighted its lack of conviction that Japan can see stable inflation with the support of domestic demand, rather than temporary cost-push factors such as higher energy and raw material prices.

Editorial and Japan Wages: Ideas Later

 

Editorial: Big firms are raising wages, but trend must reach entire Japanese economy

Article Source:  https://mainichi.jp/english/articles/20240314/p2a/00m/0op/012000c

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Japan's annual spring labor negotiations have reached their peak, and major manufacturers such as Toyota Motor Corp. and Panasonic Holdings Corp. have fully accepted labor unions' demands for higher pay. There is also a trend of improving conditions in the food and retail sectors, with many companies announcing raises for new hires.

But it is important to make sure wage increases reach all of Japan, so that people feel that we are in a positive economic cycle.

Historically high prices persist, and labor shortages are worsening. Companies unable to offer wages commensurate with job responsibilities are finding it difficult to attract talent. It is likely a sense of crisis over this situation that has prompted management's receptive attitude.

Wage increase rates are expected to surpass those seen in 2023, reaching levels not seen in about 30 years. This is a welcome development for Japan, where pay has long been stagnant.

However, early agreements have primarily involved large corporations. Negotiations for wage increases at small and medium-sized enterprises, which employ about 70% of Japan's work force, are yet to intensify. Whether the positive trend set by the big firms spreads to their smaller peers is crucial.

While the Nikkei Stock Average has reached record highs, many of Japan's residents do not feel an improvement in the economy. Real wages, adjusted for price changes, have been negative for 22 consecutive months, indicating that pay has not kept up with inflation.

Large corporations should strive to take the lead in creating an environment where their business partners can easily move to improve their own workers' employment conditions. And we urge proactive negotiations to ensure that escalating labor costs are adequately reflected in transaction prices.

Recently, cases of "bullying" by business partners have surfaced, such as those involving Nissan Motor Co. and membership-based retail giant Costco Wholesale Japan Ltd. Allowing dominant corporations to plunder the profits of their smaller business partners will result in a withering supply chain. It's urgent to eradicate these malpractices.

There is an urgent need to raise the wages of nonregular employees as well. It's imperative for major companies to take the lead in improving conditions to rectify disparities.

The Japanese economy is at a critical juncture, with one road leading to escaping its prolonged deflationary stagnation, and the other to more of the same. Expanding investments in people will be the driving force behind the former. Labor and management must continue efforts to enhance productivity and enable sustainable wage increases through cooperation.