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Extending Highs Ahead Data


(X1) Bearish Focus


Sep 10Y Puts


(U1) Gains Considered Corrective


Repo Reference Rates


Former NY Fed Dudley

--Adds Details Throughout 
     TOKYO (MNI) - The Bank of Japan's policy-making board believes that because
the pickup in consumer prices has been slow due to uncertain growth prospects
and sluggish consumption, a continuation of the current monetary easing policy
is needed, according to the summary of opinions at the board's July 19-20
meeting released Friday.
     Some members said there was no need to expand the scope of already
extensive monetary stimulus as the economy's modest recovery has continued
despite weak prices.
     "The year-on-year rate of change in the CPI (all items less fresh food) is
likely to increase gradually toward 2%," one member said. "However, it is
anticipated that it will take longer than expected to reach 2%, as developments,
such as those in commodity prices and inflation expectations, have not been
sufficiently firm while the output gap has been positive."
     Another member stated, "Room for a further increase in labor productivity
in the services sector remains large, and there is some way to go before the
tightening of labor markets leads to rises in wages and prices."
     A different member said, "In order to achieve the price stability target of
2%, it is necessary to improve the output gap through an expansion of
consumption and make firms' price-setting stance bullish."
     On monetary policy, one member said, "Although the CPI projections have
been lowered, the momentum toward achieving 2% is being firmly maintained at
this point. Thus, additional monetary easing is not necessary and the BOJ should
maintain the current policy."
     Another member said that the recent price developments had been sluggish
but that "the improving trend in economic activity has strengthened and the
momentum toward achieving the price stability target has been maintained.
Therefore, it is important to maintain the current monetary policy framework and
carefully monitor its effects."
     Among other opinions, one member said, "The BOJ should continue with the
current monetary policy until the price stability target of 2% is achieved
     At its July meeting, the BOJ board decided to leave its monetary policy
unchanged in a seven-to-two vote, retaining the yield curve control target it
adopted in September last year, while pushing back its estimate for achieving
its 2% inflation target by a year until "around fiscal 2019."
     In its quarterly Outlook Report released after the meeting, the BOJ board
again revised up slightly its economic growth forecast for the next two years on
firmer global demand but revised down its projection for inflation through
fiscal 2019 as the pace of increases in wages and retail prices remains slow.
     "Real GDP has been growing at an annual pace of more than 1%," one member
said. "Since the estimated potential growth rate is likely to be more than 1%
going forward as well, the economic stimulus effects of monetary policy will
increase if the 10-year Japanese government bond yields remain fixed at around
zero percent."
     "If prices rise under such circumstances, the monetary policy effects
should strengthen further," the member said.
     Under its policy framework, the BOJ is seeking to stabilize the 10-year
government bond yield, the benchmark for long-term borrowing costs, around zero
percent and keep the overnight interest rate at -0.1%.
     On the slow pickup in prices, one board member urged the government to
implement deregulation and other structural reforms.
     "The reason why firms prioritize cost reductions and thereby avoid raising
prices is because growth expectations are low. Thus, it is important to
implement structural policies that will raise growth expectations along with
monetary policy," the member said.
     Another member said, "It is expected that people's views on economic growth
and prices will change going forward as the economy continues expanding
moderately and the observed inflation rate rises."
     "Under such circumstances, the effects of the current accommodative
monetary policy to maintain the short- and long-term interest rates are likely
to strengthen further," the member added.
     As seen in the minutes of the previous meeting on June 15-16, the board was
divided over the prospect for labor shortages pushing up wages.
     "Firms' efforts to absorb the upward pressure on wages could push down
prices in the short run, but an increasing labor shortage is expected to start
exerting upward pressure on wages sooner or later," said one.
     But a different member was more cautious, saying, "Room for a further
increase in labor productivity in the services sector remains large, and there
is some way to go before the tightening of labor markets leads to rises in wages
and prices."
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