MNI INSIGHT: BOJ Target Needs Reaffirming, Govt Moves Counter

By Hiroshi Inoue

     TOKYO (MNI) - Japan's lawmakers and monetary policymakers must better

coordinate their actions towards hitting the 2% inflation target, as Bank of

Japan officials are becoming increasingly concerned current government policy

hinders hitting the price stability target, MNI understands.

     BOJ Governor Haruhiko Kuroda has repeatedly said that the BOJ is making

utmost efforts to hit the 2% price target, agreed in tandem back in January

2013, with a prolonged easy policy.

     However, recent government policy decisions, including the launch of free

pre-elementary education, calls for lower mobile phone charges and the

encouraging of foreign nationals to work in Japan will all further increase

downward pressure on consumer prices.

     Although free kindergarten places and cheaper phone plans will boost

household spending, which in turn will boost economic activity, BOJ officials

are concerned the moves will also dampen price hikes and delay achieving the 2%

target -- as will the influx of foreign workers, which will likely restrict wage

hikes for domestic workers.

     Japan's Prime Minister, Shinzo Abe, has said that the government is

prioritizing higher wages, along with higher consumer prices, looking to

overcome years of deflation. But the government's policies aren't consistent

with the price goal

     --CANNOT ABANDON GOAL

     But the BOJ are increasingly concerned that unless the government shows

greater policy flexibility towards achieving the target, the central bank will

need to maintain easy policy for a prolonged period, even as side affects build

up.

     It is very unlikely Japan abandons its 2% price stability target, seen as

the global standard, as such a move could lead to a swift strengthening of the

yen.

     In the recently published 'summary of opinions' from the January 22/3

meeting, one BOJ board member saw the need to prepare further policy responses

if downside risks to economic activity and prices materializes. 

     Another saw the need to avoid expectations in financial markets that the

building side-effects would mean no policy change occurring, even as the price

outlook continues to be revised lower.

     Many board members are playing down the side-effects of easy policy but the

accumulated distortions are increasing the risks that they will destabilize the

financial system -- and that is certainly a concern for the BOJ.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: MMJBJI,MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]