© Reuters. FILE PHOTO: A man walks past the headquarters of Bank of Japan in Tokyo, Japan, January 17, 2023. REUTERS/Issei Kato/
By Leika Kihara
TOKYO (Reuters) – Several Bank of Japan (BOJ) board members said the central bank must be vigilant to the risk of inflation accelerating more than expected, minutes of the March policy meeting showed on Monday.
A few of the nine-member board also said they saw some “positive signs” emerging in Japan that suggest the economy was making progress towards achieving the BOJ’s 2% target, the minutes of the March 9-10 meeting showed.
The board debated how companies were continuing to hike prices to pass on rising raw material costs, and price increases broadening to services, the minutes showed.
“It was important to use a wide range of data and look back on the basic mechanism behind price moves, to deepen our understanding on inflation developments,” one member said.
At the March meeting, the BOJ maintained its ultra-loose policy, including a 0.5% cap for the 10-year bond yield that had come under attack from markets betting on a near-term interest rate hike in the wake of recent rises in inflation.
While some saw positive signs emerging on the price front, many members said there was “extremely high” uncertainty over Japan’s economic outlook that warranted keeping monetary policy ultra-loose, the minutes showed.
“The BOJ must focus on the risk of missing the chance of achieving its price target with a premature policy shift, rather than that of being too late in modifying policy,” one member was quoted as saying.
Another member said any debate of a policy shift must be made cautiously as a reversal of ultra-loose policy would have wide-ranging effects on the public, the minutes showed.
The March meeting was the final one chaired by Haruhiko Kuroda, who retired as governor in April and was succeeded by Kazuo Ueda.
Markets are rife with speculation that Ueda will steer the BOJ away from the radical stimulus measures deployed by Kuroda, which is drawing increasing criticism for distorting market pricing and crushing financial institutions’ profits.
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On March 22nd, the Bank of Japan held a meeting to discuss the current state of inflation and its potential effects on the Japanese market moving forward. Although the Japanese economy has been showing consistent signs of recovery over the past few months, the Bank of Japan expressed concern over the risk of inflation overshooting the government-set target.
In discussing their options, the Bank of Japan agreed that their monetary policy must remain “flexible,” accommodating changes to inflation and economic growth as they happen. In a statement released after the meeting, the BOJ said it would “continue to strive to maintain a powerful cycle of economic growth while ensuring price stability,” a sentiment echoed by governor Haruhiko Kuroda.
The BOJ’s primary concern was the risk of an inflation overshoot, as an increase in consumer prices could lead to uncertainty about the effectiveness of current economic policies. This could lead to instability in the Japanese market and possibly further damage the Japanese yen, which has been relatively weak over the past year.
The bank also voiced concerns about other external factors that could risk price stability, such as geopolitical and financial risks, geopolitical uncertainties, and an unexpected change in consumer behavior. As the country moves forward, the BOJ will continue to monitor the economy and adjust their policies accordingly. While an imminent inflation overshoot is not likely, it’s clear the Bank of Japan is taking steps to form a contingency plan.
