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REPEAT: MNI BOJ Minutes: Watch Prices; No Need for More Easing

Repeats Story Initially Transmitted at 06:34 GMT Dec 26/01:34 EST Dec 26
     TOKYO (MNI) - Most of the nine Bank of Japan policy board members saw no
need to conduct additional monetary easing to lift low consumer prices, with
some warning against side-effects of prolonged massive asset purchases and low
profit margins for lenders, the minutes of the BOJ's Oct. 30-31 meeting released
Tuesday showed.
     Some board members projected labor shortages would force firms to raise
wages eventually as there is a limit to their efforts to absorb higher costs by
making their operations more efficient or curtailing business hours. Higher
productivity will initially exert downward pressures on prices but in the longer
term, it will support price rises by raising expectations for higher corporate
profits, they argued.
     "Most members shared the recognition that, although it was necessary to
carefully examine the fact that firms' wage- and price-setting stance remained
cautious, the momentum toward achieving the 2% price stability target was being
maintained," the minutes said.
     Firms' stances are likely to gradually shift toward raising wages and
prices with the steady improvement in the output gap, those members said.
     Indicators of medium- to long-term inflation expectations have stopped
declining, with some indicators showing an uptrend, and such inflation
expectations are likely to rise steadily as further price rises come to be
observed widely, they added.
     On the current pace of large-scale easing, "Most members shared the
recognition that it was appropriate for the BOJ to persistently pursue powerful
monetary easing under the current guideline for market operations, and that
additional easing measures should not be implemented at this point."
     A few members were of the view that the current monetary policy framework
incorporated a mechanism in which the effects of accommodative monetary policy
would be enhanced through a decline in real interest rates and a rise in the
natural rate of interest, with inflation expectations and the potential growth
rate rising.
     On side-effects, "A few members said that, if the BOJ took extreme monetary
easing measures only for the purpose of hastening to achieve the price stability
target, side effects such as an accumulation of financial imbalances and an
impaired functioning of financial intermediation could arise, consequently
preventing monetary accommodation from producing the intended policy effects to
a sufficient degree."
     In response to these views, one member argued that "in a situation where it
was likely that excess supply capacity remained in both capital stock and the
labor market, and considering that a consumption tax hike was scheduled for
2019, the bank should implement additional easing measures at this moment,
thereby raising the probability of achieving the price stability target
earlier."
     At its October meeting, the BOJ board decided in an 8-to-1 vote to maintain
its current monetary easing stance under the yield curve control framework it
adopted in September last year.
     Weak price data at the time prompted the board to lower its projections for
consumer prices in fiscal 2017 and 2018, but the BOJ stuck to its latest
timeframe that it can achieve its 2% inflation target "around fiscal 2019"
ending in March 2020.
     Under the yield curve control framework, the BOJ will seek to stabilize the
10-year government bond yield, the benchmark for long-term borrowing costs, at
around zero percent and keep the overnight interest rate at -0.1%.
     Board member Goushi Kataoka, who joined the board in July, dissented for
the second straight meeting, although he didn't propose any specific policy
action. Instead, Kataoka's comments were included in footnotes in the bank's
policy statement issued after the board's two-day meeting.
     "With a view to reinforcing the inflation-overshooting commitment, Mr. G.
Kataoka dissented from the decision, considering that, if there was a delay in
the timing of achieving the price stability target due to domestic factors, the
bank should take additional easing measures and that it was necessary to include
that in the text," the BOJ said.
     Kataoka also said that in order to lower longer-term interest rates, it was
appropriate for the BOJ to buy Japanese government bonds so that the 15-year JGB
yield would remain below 0.2%.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

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