Free Trial

MNI POLICY: BOJ Opinions: Must Mull Options On Slow Inflation

MNI (London)
     TOKYO (MNI) - The Bank of Japan needs to strengthen monetary easing amid
growing expectations for looser policy in the U.S. and Europe, according to one
board member, the summary of opinions at the June 19-20 meeting released Friday
showed.
     Another member noted that central banks have been vigilant regarding the
global slowdown and heightening uncertainties over it, the key for the BOJ in
overcoming deflation is for it to maintain its stance of taking "some kind of
policy responses if some changes emerge in the baseline scenario of the outlook
for prices."
     That member also said, "All policy measures -- including adjustments in
short- and long-term interest rates, an acceleration in the pace of expansion in
the monetary base, and an increase in the amount of assets to be purchased --
should be deliberated when considering additional easing."
     However, the BOJ policy board was far from implementing additional easy
policy at the June meeting, voting 7-2 to leave it unchanged, with the consensus
seeing Japan's economy continuing to expand moderately despite growing downside
risks.
     The BOJ restated the forward guidance, saying it will maintain the easy
policy "at least through around spring 2020."
     Despite intensified trade tensions and increasing uncertainties over the
global economy, the BOJ maintained its overall economic assessment as recent
data hadn't altered the baseline outlook, with a "virtuous cycle from income to
operating".
     Other key points from the summary of opinions:
     --One member said, "While banks' profits have been deteriorating, lending
rates seem to be approaching the levels of the so-called reversal rates, which
reverse the effects of monetary easing and decrease the amount of bank loans. If
base rates for bank loans decline further, there could be a decline in the
amount of bank loans, which constitute an important transmission channel through
which the effects of monetary policy spread to the real economy."
     --Another member said there is a risk that providing financial institutions
with funds at negative interest rates will not lead to increased lending and a
concern that it will "bring about downward pressure on interest rates, depending
on developments in economic activity and financial conditions."
     --One member said, "The BOJ needs to constantly consider measures that
enhance the sustainability of monetary easing."
     --A different member noted the necessity of examining the impact declining
sentiment amongst households and companies on inflation expectations. "If there
is concern that such momentum will be lost, the BOJ should consider implementing
necessary policy measures appropriately."
     --One member said, "There is a low possibility that the output gap will
continue to widen within positive territory, and inflation expectations have
remained weak. Against this background, it cannot be judged that the inflation
rate will accelerate toward 2 percent."
     --"While upward pressure of a positive output gap on prices has been
maintained, a rise in inflation has been delayed, being offset by the
constraining effects on inflation due to a rise in productivity accompanying,
for example, firms' labor-saving investment."
     -- The summary noted that the ongoing impact of the trade dispute between
the U.S. and China had hampered any acceleration In Japan's inflation rate,
noting "there is still a long way to go to achieve the price stability target of
2 percent."
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: MMJBJ$,M$A$$$,M$J$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.