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Free AccessUPDATE: BOJ Masai: Maintain Easing Toward 2% Inflation Target
--Adds Details From 10th Paragraph
MATSUYAMA, Japan (MNI) - The Bank of Japan must continue implementing
monetary easing to secure the path toward its increasingly evasive 2% inflation
target and inform the public what is preventing the bank from reaching the goal,
board member Takako Masai said Thursday.
In a speech to business leaders in Matsuyama City, western Japan, Masai
said she is aware or the criticism of the central bank as it has delayed its
estimated timing for reaching the target several times since it began aggressive
easing more than four years ago.
"The bank certainly aims to achieve the price stability target of 2% at the
earliest possible time, and the delay in such timing is not desirable," she
said.
"However, what I believe is important for the bank is -- in the event that
the 2% price stability target cannot be achieved due to economic and price
developments at the time -- to thoroughly explain the reasons behind the target
not being achieved and to implement monetary policy so that the economy will
follow a path toward the target."
She added that the policy framework of inflation targeting is also expected
to "perform the role of a communication tool."
Masai repeated the bank's official line that there are brighter spots in
the economy that are likely to turn around the stubborn deflationary mindset
among households and businesses.
"There is still a long way to go to achieve the price stability target of
2%. Nevertheless, my view is that the momentum toward achieving the target has
started to steadily increase."
Masai joined the nine-member BOJ policy board in June 2016 after serving as
an executive officer overseeing market research at Shinsei Bank.
At its latest policy meeting on July 19-20, 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." It was the sixth delay since April 2013 when the bank launched aggressive
easing.
Among the brighter spots in the economy, Masai noted base wages have
largely continued to rise for two years, even thought the rise has been modest.
The latest government data show base wages, the key to a recovery in total
cash earnings per employee, rose 0.5% in June from a year earlier, the third
straight year-on-year rise and the 11th gain in the past year. On an annual
basis, base wages rose 0.2% in calendar 2016, the second consecutive increase
after +0.3% in 2015.
As base wages have been rising steadily at small businesses, which employ
70% of the workforce, a clearly increasing number of households can now feel
that their wages actually have been rising, Masai argued.
"This is highly important in terms of raising people's inflation
expectations," she said.
Masai also pointed to a "growing impetus" toward raising productivity, due
in part to labor shortages.
"Investment that serves a positive purpose -- such as that in
efficiency-improving and labor-saving machinery and equipment, and in research
and development for growth areas -- is expected to further rise, and this will
likely contribute to improving productivity," she said.
The BOJ's initiatives to maintain highly accommodative financial conditions
and ensure the overcoming of deflation will continue to foster positive
developments among firms, she added.
"In my view, this will lead to improvement in productivity and ultimately
to a rise in the potential growth rate," she said.
As for the yield curve control policy that the BOJ adopted last September,
Masai said, "The current framework ... is designed to amplify monetary easing
effects when the outlook for economic activity and prices improves."
"In that case, there would be upward pressure on interest rates in
accordance with such improvement. The degree of monetary easing will increase if
the BOJ contains such upward pressure and thereby maintains the shape of the
yield curve."
Masai said a rise in women's labor participation rate would help ease
severe labor shortages in some sectors that are missing out on business
opportunities or facing rising labor costs.
"Japan's economy currently faces severe labor shortages, and a worsening of
this situation is inevitable amid the further decline in the working-age
population," she said. "Women continue to constitute a considerably large
potential labor force."
"In addition to the impact on labor supply of women's participation in the
workplace, improving firms' competitiveness through the promotion of such
participation will become more important," Masai added.
In the process of promoting women's participation in the workplace,
business efficiency has improved by reducing long working hours and promoting
labor-saving investment, she said.
The Organisation for Economic Co-operation and Development estimates that
if women's labor participation rate in Japan were to remain the same over the
next 20 years, the labor supply would contract by 17%, she noted.
But if women's participation rate were to converge with that of men over
the next 20 years, the fall in labor supply would be limited to 5% and as a
result, Japanese GDP would increase by almost 20% over the two decades, she
said, quoting the OECD's estimate.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com
[TOPICS: MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$]
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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.