BOJ discusses inflation risks in subtle board change debate According to Reuters


© Reuters. FILE PHOTO: A fish vendor at a store in the Ameyoko shopping district in Tokyo, Japan, May 20, 2022. REUTERS / Kim Kyung-Hoon


By Leika Kihara

TOKYO (Reuters) – A spike in prices in Japan prompted some central bank policymakers to warn last month that inflation could exceed expectations, highlighting the challenge posed by Governor Haruhiko Kuroda faced in justifying extremely low interest rates.

One board member went as far as to say that the Bank of Japan (BOJ) must ultimately communicate an “extremely easy” exit strategy, a summary of comments at the meeting said. September meeting shows.

While many comments called for the need to keep monetary policy extremely loose to support the fragile economy, the comments suggested a gradual shift in the board’s balance. BOJ values ​​were once dominated by proponents of aggressive easing.

“There is a risk that consumer inflation could deviate significantly from our baseline, in part due to the impact of exchange rate moves. This should be viewed modestly and without any prejudice,” one board member said in the summary, released on Monday.

“Companies continue to announce plans to raise prices amid higher raw material costs. Price increases are likely to continue for a wide range of products,” another opinion piece noted in the release. summary.

At its September 21-22 meeting, the BOJ kept interest rates extremely low and directed a pledge to keep monetary policy extremely loose until inflation stabilizes to reach its 2% target. This was the first meeting of the two newcomers, in July, who replaced a former commercial banker Hitoshi Suzuki and moderate economist Goushi Kataoka.

The BOJ remains an outlier in a global wave of central banks tightening monetary policy to combat soaring inflation, which has pushed the yen to a 24-year low against the dollar.

“The majority of the board seems to believe that while prices are rising, it remains unclear whether this will lead to gains,” said Ayako Fujita, chief economist for Japan at JPMorgan (NYSE: Securities). sustainable wages to achieve the price target”.

“But compared to July, there appears to be a shift in the board’s view of how they view prices and the wage outlook. Key to the BOJ’s policy outlook is whether those views are divided. share more widely or not,” she said.

At the September meeting, one member pointed to some market participants’ concerns about deviations in bond market performance, in part due to the BOJ’s massive bond purchases.

“At some point in the future when the time is right, it is important for the BOJ to properly communicate with the markets about an exit strategy,” the member said.

Japan’s core consumer inflation hit 2.8% in August, beating the BOJ’s 2% target for a fifth straight month as price pressures from raw materials and a weak yen intensified.

A quarterly survey released on Monday showed companies forecast inflation to be at or above 2% over the next five years, casting doubt on the BOJ’s forecast that recent price hikes will only short-lived.


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