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MNI INSIGHT: Inflation Over 3% Not Enough For BOJ

(MNI) Tokyo

The BOJ still sees little sign of the impetus for wage growth it would need in order to move away from easy policy.

The Bank of Japan sees a risk prices will rise more quickly than officials had anticipated at their July meeting, but a jump in inflation to 3% or higher later this year will not be enough to prompt any shift in its easy policy stance unless it feeds into an acceleration of wages next spring, MNI understands.

Higher food prices, supply side constraints and the failure of government subsidies to curb an increase in petrol prices are set to push inflation well above the BOJ’s 2% price stability target. The central bank has also been monitoring yen depreciation, though it is factoring in a slowing global economy as well and would only be likely to adjust its policy if the currency were to stabilise at a level weaker than 140 to the dollar, from around 135 now. (See MNI INSIGHT: BOJ Eyes Autumn Move If Yen Steadies, Prices Rise)

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The Bank of Japan sees a risk prices will rise more quickly than officials had anticipated at their July meeting, but a jump in inflation to 3% or higher later this year will not be enough to prompt any shift in its easy policy stance unless it feeds into an acceleration of wages next spring, MNI understands.

Higher food prices, supply side constraints and the failure of government subsidies to curb an increase in petrol prices are set to push inflation well above the BOJ’s 2% price stability target. The central bank has also been monitoring yen depreciation, though it is factoring in a slowing global economy as well and would only be likely to adjust its policy if the currency were to stabilise at a level weaker than 140 to the dollar, from around 135 now. (See MNI INSIGHT: BOJ Eyes Autumn Move If Yen Steadies, Prices Rise)

Keep reading...Show less