Highlights
Bank of Japan board members warned that a premature end to the bank's decade-old large-scale monetary easing would undermine an emerging path toward stable 2 percent inflation with sustainable wage growth, according to the summary of discussion at its latest policy meeting on June 15-16.
"The bank should continue with monetary easing and thereby carefully nurture the long-awaited buds of change in Japan's economy, including those in firms' wage- and price-setting behavior," one member said.
Another one noted that the wage growth rate agreed in this year's annual spring labor-management wage negotiations among large firms thus far has been the highest in around 30 years."In order to achieve the price stability target of 2 percent in a sustainable and stable manner, it is important for the bank to keep supporting such momentum for wage hikes through continuation of the current monetary easing," the member said.
Board members also noted that many small businesses are more willing to raise wages and invest, for example, their continued pass-through of cost increases to selling prices and expansions of exports."It would be premature to revise monetary policy if it would hinder such developments," one member said.
Another one stressed that downside risks to inflation are still considered to be"significant" in the medium term, adding,"It is appropriate that the bank continue with monetary easing while paying attention to its side effects."
At the June meeting, the bank's policy board decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to continue seeking stable 2 percent inflation and to support sustainable wage growth.
The board also voted unanimously to maintain its decision made in December 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, which was designed to meet upward pressures arising from last year's aggressive tightening by other major central banks. The bank also hopes to revive some of the paralyzed market function under its yield curve control regime.
"As dissipation of distortions on the yield curve has progressed and improvement in market functioning has been observed, there is no need to revise the conduct of yield curve control," one member said.
But there is a view among the board that it should review the yield curve control framework that it adopted in September 2016.
The bank should maintain the overall framework of monetary easing for the time being, since the cost of waiting for such achievement is not high, one member said, but also added that the cost of keeping the yield curve control is high, and thus what to do with this easing tool"should be discussed at an early stage."
"In reviewing monetary policy from a broad perspective, it would be appropriate for the bank to incorporate diverse expertise in the review and take various initiatives with a view to enhancing its objectivity and transparency," another member said."Such initiatives include not only conducting internal analyses, but also making use of existing series of materials, such as reports and surveys, and holding interviews, exchanges of views, and workshops."
For the current fiscal year, some members saw higher upside risks to inflation while others were more focused on downside risks. The risk that the inflation rate will remain high at a level exceeding 2 percent cannot be ruled out while there remains a significant risk of the inflation rate not returning to 2 percent after it falls below 2 percent in the future, according to the summary.
"The year-on-year rate of increase in the CPI is expected to fall below 2 percent in the second half of fiscal 2023 after the pass-through of the past rise in import prices diminishes," said one."However, given that firms' stance has shifted toward raising their selling prices, there is a possibility that the rate will deviate upward from the baseline scenario."
Another member noted that corporate behavior has seen clear changes, and price and wage hikes have been incorporated into corporate strategy."In addition, various measures of underlying inflation have mostly shown a rate exceeding 2 percent," the member said."It is highly likely that the year-on-year rate of increase in the CPI (all items less fresh food) will decelerate toward the middle of fiscal 2023 but will not fall below 2 percent."
Generally, the board's assessment is that the inflation outlook remains uncertain.
"As an upside risk, attention is warranted on the possibility that firms' pass-through of cost increases to consumer prices will continue for longer than expected," one member said."As a downside risk, in a case where the global economy -- the U.S. and Chinese economies in particular -- deviates downward from the baseline scenario, how this will affect Japan's prices also warrants attention."
"The outlook for prices may deviate upward from the baseline scenario since the pass-through of cost increases has continued to be observed," another one said."However, the sustainability is still of concern."
A third member said:"Uncertainties over the outlook for prices have heightened, and various paths can be expected depending on the pace of deceleration in import inflation, when inflation that stems from domestic factors will take place, and how strong such inflation will be."
"The bank should continue with monetary easing and thereby carefully nurture the long-awaited buds of change in Japan's economy, including those in firms' wage- and price-setting behavior," one member said.
Another one noted that the wage growth rate agreed in this year's annual spring labor-management wage negotiations among large firms thus far has been the highest in around 30 years."In order to achieve the price stability target of 2 percent in a sustainable and stable manner, it is important for the bank to keep supporting such momentum for wage hikes through continuation of the current monetary easing," the member said.
Board members also noted that many small businesses are more willing to raise wages and invest, for example, their continued pass-through of cost increases to selling prices and expansions of exports."It would be premature to revise monetary policy if it would hinder such developments," one member said.
Another one stressed that downside risks to inflation are still considered to be"significant" in the medium term, adding,"It is appropriate that the bank continue with monetary easing while paying attention to its side effects."
At the June meeting, the bank's policy board decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to continue seeking stable 2 percent inflation and to support sustainable wage growth.
The board also voted unanimously to maintain its decision made in December 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, which was designed to meet upward pressures arising from last year's aggressive tightening by other major central banks. The bank also hopes to revive some of the paralyzed market function under its yield curve control regime.
"As dissipation of distortions on the yield curve has progressed and improvement in market functioning has been observed, there is no need to revise the conduct of yield curve control," one member said.
But there is a view among the board that it should review the yield curve control framework that it adopted in September 2016.
The bank should maintain the overall framework of monetary easing for the time being, since the cost of waiting for such achievement is not high, one member said, but also added that the cost of keeping the yield curve control is high, and thus what to do with this easing tool"should be discussed at an early stage."
"In reviewing monetary policy from a broad perspective, it would be appropriate for the bank to incorporate diverse expertise in the review and take various initiatives with a view to enhancing its objectivity and transparency," another member said."Such initiatives include not only conducting internal analyses, but also making use of existing series of materials, such as reports and surveys, and holding interviews, exchanges of views, and workshops."
For the current fiscal year, some members saw higher upside risks to inflation while others were more focused on downside risks. The risk that the inflation rate will remain high at a level exceeding 2 percent cannot be ruled out while there remains a significant risk of the inflation rate not returning to 2 percent after it falls below 2 percent in the future, according to the summary.
"The year-on-year rate of increase in the CPI is expected to fall below 2 percent in the second half of fiscal 2023 after the pass-through of the past rise in import prices diminishes," said one."However, given that firms' stance has shifted toward raising their selling prices, there is a possibility that the rate will deviate upward from the baseline scenario."
Another member noted that corporate behavior has seen clear changes, and price and wage hikes have been incorporated into corporate strategy."In addition, various measures of underlying inflation have mostly shown a rate exceeding 2 percent," the member said."It is highly likely that the year-on-year rate of increase in the CPI (all items less fresh food) will decelerate toward the middle of fiscal 2023 but will not fall below 2 percent."
Generally, the board's assessment is that the inflation outlook remains uncertain.
"As an upside risk, attention is warranted on the possibility that firms' pass-through of cost increases to consumer prices will continue for longer than expected," one member said."As a downside risk, in a case where the global economy -- the U.S. and Chinese economies in particular -- deviates downward from the baseline scenario, how this will affect Japan's prices also warrants attention."
"The outlook for prices may deviate upward from the baseline scenario since the pass-through of cost increases has continued to be observed," another one said."However, the sustainability is still of concern."
A third member said:"Uncertainties over the outlook for prices have heightened, and various paths can be expected depending on the pace of deceleration in import inflation, when inflation that stems from domestic factors will take place, and how strong such inflation will be."
Market Consensus Before Announcement
The focus in on how Bank of Japan board members assessed the sustainability of wage hikes planned for fiscal 2023 and whether they believed firms' pricing behavior was changing toward passing higher production and labor costs onto customers, instead of being cautious about raising prices for fear of losing market share.
At its latest meeting on June 15-16, the bank's policy board decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to continue seeking stable 2 percent inflation and support sustainable wage growth.
The bank repeated its April outlook that the domestic economy should recover modestly and inflation is expected to ease in fiscal 2023 ending next March after a spike in global energy and commodity markets led to a surge in consumer prices in fiscal 2022. It will update its medium-term growth and inflation projections as well as risk analysis after the July 27-28 policy meeting.
"With extremely high uncertainties surrounding economies and financial markets at home and abroad, the bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions," the bank said after the June meeting, repeating its last statement issued in April."By doing so, it will aim to achieve the price stability target of 2% in a sustainable and stable manner, accompanied by wage increases."
The statement indicates that the bank could adjust its yield curve control framework to allow slightly higher interest rates in a gradual shift toward an eventual exit from a decade of large-scale monetary easing.
At its latest meeting on June 15-16, the bank's policy board decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to continue seeking stable 2 percent inflation and support sustainable wage growth.
The bank repeated its April outlook that the domestic economy should recover modestly and inflation is expected to ease in fiscal 2023 ending next March after a spike in global energy and commodity markets led to a surge in consumer prices in fiscal 2022. It will update its medium-term growth and inflation projections as well as risk analysis after the July 27-28 policy meeting.
"With extremely high uncertainties surrounding economies and financial markets at home and abroad, the bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions," the bank said after the June meeting, repeating its last statement issued in April."By doing so, it will aim to achieve the price stability target of 2% in a sustainable and stable manner, accompanied by wage increases."
The statement indicates that the bank could adjust its yield curve control framework to allow slightly higher interest rates in a gradual shift toward an eventual exit from a decade of large-scale monetary easing.
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.
