Bank of Japan Publishes Main View of Monetary Policy Meeting, Discusses Price Stability and Wage Increases

Bank of Japan Reveals Monetary Policy Meeting Views

The Bank of Japan has published the “main view” of its recent monetary policy meeting, which took place on September 21 and 22. During the meeting, discussions were held on the potential achievement of the 2% price stability target and the importance of sustainable wage increases. Some participants expressed the opinion that the goal could be set between January and March of next year.

Regarding monetary policy management, it was noted that the current situation has not yet reached a point where the price stability target can be achieved sustainably and stably through wage increases. As a result, it was deemed necessary to continue relieving the money supply.

Another opinion highlighted the need to support the momentum of wage increases through ongoing monetary easing.

Given the uncertain future price outlook, some emphasized the importance of closely monitoring price trends under the current Yield Curve Control (YCC) framework. Additionally, it was mentioned that long-term interest rates remain relatively fixed and that no additional reviews are currently required.

Looking ahead, there were suggestions that the discussion on the discontinuation of the YCC framework and the potential increase of negative interest rates should be linked to the success of achieving the 2% target.

In order to sustainably achieve the price stability target, it was noted that established wage increases are necessary and stable price increases, especially in service prices, should be achieved through pass-through in prices. Attention is being placed on the momentum of wage increases, particularly among small and medium-sized businesses, to determine if there will be a strong increase in demand and if labor costs will gradually be passed on to prices due to wage increases.

During the September meeting, it was acknowledged that inflation expectations are showing some upward movement, bringing the Bank of Japan closer to reaching its price stability target, although there is still a long way to go.

The current state of the Japanese economy is seen as critical, with a strong desire among companies for reform. While concrete decisions cannot be made at this moment, it is expected that the achievement of goals could be determined as early as next spring. The focus is on improving market functions and effective communication, considering possible exit strategies.

Regarding the consideration of raising negative interest rates, it was suggested that if real interest rates remain negative, it should be interpreted as a continuation of monetary easing, emphasizing the need for careful communication. It was also mentioned that the government should explore the possibility of buying assets other than government bonds.

In terms of consumer prices, the growth rate of commodity prices is expected to slow down in relation to falling import prices, leading to a potential slowdown in future price increases.

As some companies are showing more aggressive behavior in setting wages and prices, there is optimism that a virtuous cycle will emerge, resulting in price increases alongside wage increases. There is a strong possibility that next year’s rate of pay rise will be higher than this year’s.

Economic uncertainty and prices remain extremely high, with concerns raised about the potential for prices to not fall as much as expected and even move upwards, given the weaker yen and higher crude oil prices.

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On October 2nd, the Bank of Japan published the “main view” of the monetary policy meeting held on 21 and 22 September. The photo was taken in April in front of the Bank of Japan head office (2023 Reuters / Androniki Christodoulou)

TOKYO (Reuters) – On the 2nd, the Bank of Japan published the “main view” of the monetary policy meeting held on September 21 and 22. Regarding the realization of the price stability target of 2% sustainable and stable along with salary increases, there was an opinion “it is possible that we will be able to set the goal between January and March next year.”

Regarding the management of monetary policy, from the September meeting, “the situation has not reached a point where it can be predicted that the price stability target will be achieved in a sustainable and stable manner with an increase in wages, and therefore, it is necessary continue to relieve money continuously.”

Another voiced the opinion “it is necessary to continue to support the momentum of wage increases” through continued monetary easing.

As it is unclear whether the future price outlook will improve, some note that it is important to carefully monitor price trends under the current YCC, which has made management more flexible,” and “ long-term interest rates remain relative. fixed.” “No additional reviews are required.”

Regarding future policy management, some indicated that “the abolition of the YCC framework and the raising of negative interest rates should be discussed in conjunction with the success of achieving 2%, as they are linked to the goal of achieving 2% in lonely ”

From the point of view, in order to sustainably achieve the price stability target, it is necessary for wage increases to be established, and for price increases that focus on service prices to become stable through pass-through in prices, “ the momentum of wage increases is constant. is increasing, including among small and medium-sized businesses.” “We are paying attention to see if there will be a strong increase in demand, and if labor costs will gradually be passed on to prices due to wage increases.”

At the September meeting, “Inflation expectations are showing some upward movement, and we are getting closer to reaching the price stability target, although it is still a long way off.” be assessed.”

The Japanese economy is now at a critical point, and companies’ desire to reform needs to be supported. “There is a lot of certainty. We are not in a period where we can make a concrete decision at the moment.” However, we are looking at a situation where it will be possible to determine whether we will achieve our goals as early as next spring, and we aim to 1) improve market functions, and 2) communicate with an eye on the exit. the view that it is important to improve the environment, such as:

Even if negative interest rates were raised, there was an opinion that, “if real interest rates are negative, it would be interpreted as a continuation of monetary easing. It is important to communicate this carefully,” and keep in mind the exit period in the future “The government should consider not only YCC but also the need to buy assets other than government bonds.”

Regarding consumer prices, “the growth rate of commodity prices is finally slowing down, lagging behind the fall in import prices. In light of this, it is believed that the rate of increase in prices going forward is likely to slow down.” said a voice.

Although the rate of increase in consumer prices remains above 2%, it is said that “the main cause is still the transmission of import price increases to prices,” and as the rate of increase in import prices continues to have passed it. on to prices, “the rate of increase in consumer prices will continue to rise.” There is a possibility that the upward trend will continue for some time.” Transport fees and public service fees are expected to rise, and some said that “the increases are expected to continue into the next financial year.”

As the behavior of some companies in terms of determining wages and prices is “starting to become more aggressive than before,” it is believed that a virtuous circle is emerging which will lead to price increases along with wage increases. Another pointed out that there is a good chance that next year’s rate of pay rise will be higher than this year’s.

In terms of economic uncertainty and prices, the view was expressed that “it remains extremely high.” Given the weaker yen and higher crude oil prices, there was also the view that there was “a significant risk that prices will not fall as much as expected and could move upwards.”

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