BOJ policymakers saw chance of inflation overshoot in January

© Reuters. FILE PHOTO: A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020. REUTERS/Kim Kyung-Hoon

By Leika Kihara

TOKYO (Reuters) – Bank of Japan policymakers agreed that consumer inflation may overshoot their expectations if companies pass on rising costs quicker than forecast, minutes of the central bank’s January meeting showed on Thursday.

One member said consumer inflation may temporarily hit 1.5%, while another projected a brief rise near the central bank’s 2% target as companies pass on rising raw material costs to households, the minutes showed.

“Many companies are feeling the limit of sticking to a business model that was effective deflation. As they change their price-setting behaviour, inflationary pressure may heighten,” one member was quoted as saying.

“We’re seeing stock prices rise for companies that hike prices,” another member said. “Price hikes may broaden, and heighten medium- to long-term inflation expectations.”

The remarks underscore the increasing attention the BOJ policymakers was putting on rising inflationary pressures, even as they commit to keeping monetary policy ultra-loose to support a fragile economic recovery.

Many members said they were closely watching wages, as they make up a big component of service costs and determine to what extent households would swallow price hikes, the minutes showed.

“Nominal wage growth must exceed 2% for Japan to stably meet the BOJ’s price target,” one member was quoted as saying.

“To change corporate and household perception on future price moves, it’s important to maintain our current powerful monetary easing,” another member said.

At the Jan. 17-18 policy meeting, the BOJ raised its inflation forecasts but maintained its massive stimulus with price growth still distant from its 2% target.

Japan’s core consumer prices rose 0.6% in February from a year earlier, marking the fastest pace in two years but still well below the BOJ’s 2% target as weak household spending discourages firms from passing on soaring raw material costs.

While many analysts expect rising fuel costs to push up core consumer inflation near 2% in coming months, there is uncertainty on whether the increase will be sustained as slow wage growth weighs on consumption.

The BOJ has repeatedly stressed its resolve to maintain its massive stimulus for the time being, even as other major central banks eye an exit from crisis-mode policies.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *