Summary of Opinions at the Monetary Policy Meeting (SOO) is a good and concise summary of the opinions of policy board members.
Generally, policy board members have high hopes that:
1) higher inflation,
2) higher corporate profits,
3) higher salary increases and
4) higher prices of Japanese shares
... may prove to be a turning point for the Japanese economy:
“Expectations for the outlook for Japan's economy have increased, since the wage growth agreed in this year's annual spring labor-management wage negotiations to date has been higher than expected and stock prices have recently exceeded the record high. Thus, the economy is possibly reaching a historic inflection point.”
Economic growth is to be driven by "a virtuous cycle from income to spending". This will also allow BoJ to achieve the 2% inflation target:
“As recent data and anecdotal information from firms have gradually been shown that the virtuous cycle between wages and prices has become more solid, it can be judged that it is now within sight that the price stability target of 2 percent will be achieved in a sustainable and stable manner toward the end of the projection period of the January 2024 Outlook Report".
But the BoJ is not yet entirely sure that the virtuous cycle is solid:
" (…) in order to confirm whether the virtuous cycle between wages and prices has become more solid, the Bank needs to carefully assess the rise in services prices and the progress in the pass-through of cost increases to selling prices by small and medium-sized firms "
Achieving the 2% inflation target allows for significant changes in monetary policy (end of negative policy rate, end of yield curve control), but monetary policy should remain accommodative:
“It is important to clearly communicate through the use of various methods that the changes in the monetary policy framework proposed at this MPM will not be a regime shift toward monetary tightening, but rather a part of efforts to achieve the price stability target.”
“The Bank will continue its JGB purchases at broadly the same amount as at present”
“JGB purchases will be conducted from the perspective of avoiding rapid fluctuations in long-term interest rates, not as an active monetary policy tool. In doing so, it is important to recovery promote in market liquidity while letting interest rates be determined by the market as much as possible.”
Comments