Highlights
Bank of Japan board members agreed that the economy still needs very accommodative monetary policy support for sustainable wage growth and price stability around 2 percent, avoiding specific debate on the costs and benefits of the easy policy stance at this point, according to the summary of opinions expressed at the bank's Jan. 17-18 meeting released Thursday.
The summary, a preview of the minutes to be issued on March 15, also showed board members expect inflationary pressures arising from high import costs to wane in fiscal 2023 staring in April following what they see as a temporary spike in the annual inflation rate to around 4 percent now.
"It is appropriate to continue with monetary easing at this point, although it is necessary to examine this at some point in future and assess the balance between positive effects and side effects," one member said.
"Since fund management and financing have continued to be based on the assumption that interest rates will remain low for a long period, in the future phase of an exit from the current monetary policy, it will be necessary to examine where the risks associated with a rise in interest rates lie and whether market participants are well prepared."
On what the central bank should do now, one member said,"Considering the outlook for prices, at present, it is important for the bank to continue with monetary easing and thereby firmly support the economy and realize a favorable environment for firms to raise wages."
But board members cautioned that it is a long way toward substantial wage growth in Japan where firms have been reluctant to increase fixed costs and workers have focused on securing jobs and improving working conditions.
"The momentum for wage hikes has grown, and it is possible that a certain degree of base pay increases will be realized, especially among large firms," one member said."However, there have been cautious views among some firms on raising wages. Since it will take time for wages to see a sustained increase, there needs to be support from macroeconomic policy."
A different member noted:"In order to encourage firms' efforts with regard to business transformation until sustained wage increases can be expected, the bank needs to curb interest rate rises across the entire yield curve while paying attention to the functioning of bond markets."
The board agreed that inflationary pressures are easing.
"The year-on-year rate of increase in the import price index has decelerated clearly, and the cost-push inflationary pressure, which has driven price rises, has started to wane," one member said.
"In order to achieve the price stability target of 2 percent, a shift to demand-pull inflation is necessary, and the inflation rate for general services warrants close monitoring," another one said.
Wages for service providers have been slow to rise in Japan, keeping service price gains subdued, but a different member said,"The pace of rises in prices of not only goods but also services is accelerating."
In its quarterly Outlook Report, which was issued at the end of the bank's meeting on Jan. 17-18, the BoJ board slightly revised up its forecast for inflation for the current fiscal year while foreseeing consumer prices will lose stem and fail to reach the bank's elusive 2 percent target.
At its January meeting, the board decided unanimously to maintain its basic monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases, against the backdrop of a possible recession in other major economies and an expected waning in inflation from the current spike boosted by high import costs.
Last month, the board decided unanimously to allow the yield on the 10-year Japanese government bonds to rise to 0.5 percent from the previous cap of 0.25 percent amid upward pressures arising from aggressive tightening by other major central banks, hoping to revive some of the paralyzed market functions under its yield curve control regime.
"The modification of the conduct of yield curve control decided at the previous MPM (monetary policy meeting) is a measure that is aimed solely at making monetary easing more sustainable through improvement in the functioning of financial markets," one member said.
"It is necessary for the bank to take some time to examine the effects that the modification of the conduct of yield curve control decided at the previous MPM has on market functioning," another member said.
The summary, a preview of the minutes to be issued on March 15, also showed board members expect inflationary pressures arising from high import costs to wane in fiscal 2023 staring in April following what they see as a temporary spike in the annual inflation rate to around 4 percent now.
"It is appropriate to continue with monetary easing at this point, although it is necessary to examine this at some point in future and assess the balance between positive effects and side effects," one member said.
"Since fund management and financing have continued to be based on the assumption that interest rates will remain low for a long period, in the future phase of an exit from the current monetary policy, it will be necessary to examine where the risks associated with a rise in interest rates lie and whether market participants are well prepared."
On what the central bank should do now, one member said,"Considering the outlook for prices, at present, it is important for the bank to continue with monetary easing and thereby firmly support the economy and realize a favorable environment for firms to raise wages."
But board members cautioned that it is a long way toward substantial wage growth in Japan where firms have been reluctant to increase fixed costs and workers have focused on securing jobs and improving working conditions.
"The momentum for wage hikes has grown, and it is possible that a certain degree of base pay increases will be realized, especially among large firms," one member said."However, there have been cautious views among some firms on raising wages. Since it will take time for wages to see a sustained increase, there needs to be support from macroeconomic policy."
A different member noted:"In order to encourage firms' efforts with regard to business transformation until sustained wage increases can be expected, the bank needs to curb interest rate rises across the entire yield curve while paying attention to the functioning of bond markets."
The board agreed that inflationary pressures are easing.
"The year-on-year rate of increase in the import price index has decelerated clearly, and the cost-push inflationary pressure, which has driven price rises, has started to wane," one member said.
"In order to achieve the price stability target of 2 percent, a shift to demand-pull inflation is necessary, and the inflation rate for general services warrants close monitoring," another one said.
Wages for service providers have been slow to rise in Japan, keeping service price gains subdued, but a different member said,"The pace of rises in prices of not only goods but also services is accelerating."
In its quarterly Outlook Report, which was issued at the end of the bank's meeting on Jan. 17-18, the BoJ board slightly revised up its forecast for inflation for the current fiscal year while foreseeing consumer prices will lose stem and fail to reach the bank's elusive 2 percent target.
At its January meeting, the board decided unanimously to maintain its basic monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases, against the backdrop of a possible recession in other major economies and an expected waning in inflation from the current spike boosted by high import costs.
Last month, the board decided unanimously to allow the yield on the 10-year Japanese government bonds to rise to 0.5 percent from the previous cap of 0.25 percent amid upward pressures arising from aggressive tightening by other major central banks, hoping to revive some of the paralyzed market functions under its yield curve control regime.
"The modification of the conduct of yield curve control decided at the previous MPM (monetary policy meeting) is a measure that is aimed solely at making monetary easing more sustainable through improvement in the functioning of financial markets," one member said.
"It is necessary for the bank to take some time to examine the effects that the modification of the conduct of yield curve control decided at the previous MPM has on market functioning," another member said.
Definition
The Bank of Japan releases the Summary of Opinions expressed by its nine policy board members six business days after each Monetary Policy Meeting.
Description
The BoJ holds eight MPMs a year, in January, March, April, June, July, September, October and December. The BoJ began publishing the summary in 2016 to provide a brief look at what was discussed at the latest meeting as part of its efforts to increase the transparency of the conduct of monetary policy. The governor of the bank holds a news conference at 1530 JST (0630 GMT), a few hours after the release of the monetary policy statement, to discuss the board's policy decision and assessment of the economic and financial conditions. More details become available when the summary is published. Before 2016, market participants had to wait until the release of the minutes, which comes a month or two after the meeting because the board must approve the minutes at the following meeting before its release. The summary is edited by the governor and does not require the board's approval.
