According to insiders and commentators, the Bank of Japan is paving the way for a period of consistent interest rate increases by declaring success in its protracted war against deflation. This comprehensive reassessment of previous policies acknowledges notable changes in consumer behaviour.
The results would demonstrate how the central bank is defining boundaries for the drastic monetary stimulus implemented by previous governor Haruhiko Kuroda and crafting a new narrative to signal a return to more traditional policy that focusses on short-term interest rates.
The Bank of Japan has stated that the study, a hallmark initiative of Governor Kazuo Ueda, would not impact future monetary policy. The assessment examines the benefits and drawbacks of monetary easing measures implemented during the last 25 years.
However, the final result, which has not yet been made public in its entirety, will fundamentally alter the central bank's views on inflation.
"The Bank of Japan is utilising Japan's evolving social norm to support its estimate that inflation will sustainably reach 2% in the upcoming years - a requirement for interest rate increases," stated Nobuyasu Atago, a former BOJ official and current head economist at Rakuten Securities Economic Research Institute.
The study will support the central bank's argument that Japan's economy can withstand the effects of a gradual increase in the country's currently near-zero interest rate environment, according to two people who are familiar with BOJ's thinking.
"The key message is that Japan's deflationary norm has changed," one of the sources said. "It's essentially saying that Japan is ready for higher rates."
As investors flocked back to Big Tech stocks that had sparked widespread sell-offs earlier in the week, the BOJ attempted to shock the public out of a deflationary mindset with massive money printing under Kuroda's "bazooka" stimulus deployed in 2013. The BOJ aimed to achieve its 2% inflation target in roughly two years.
External circumstances, such as supply restrictions brought on by the epidemic and the war in Ukraine, finally achieved what the experiment failed to do by driving up import costs and maintaining inflation over 2% for well over two years.
Now, the central bank is using behavioural shifts in homes and businesses to explain why, in deputy governor Shinichi Uchida's words, "this time is different" in Japan's protracted deflationary war.
In a speech on May 27, Uchida described labour market shifts as fundamental and permanent, stating that Japan is on the verge of eliminating a "deflationary norm," or the belief held by people and businesses that prices and wages won't increase substantially.
In fact, despite differing opinions among the general public, Japanese consumers seem to be shedding the deeply ingrained belief that prices will never increase again that was formed during the crisis of the 1990s.
Aki Kuramoto, a 55-year-old mother of two who works in an office, is preparing for a time when costs will continue to rise.
She stated, "I think product prices would rise further and inflation would last for a while," as she was making her way through a Tokyo supermarket. "We need to be prepared for that."
According to the sources, Uchida's perspective on inflationary perceptions, given that he devoted the most of his central banking career to combating protracted economic stagnation, aligns with the review's overall thesis about structural shifts in the economy.
Core inflation, which touched 2.6% in June, has now been over the BOJ's 2% objective for well over two years after decades of primarily flat or negative growth.
Those days of hiring people at almost negligible salary growth are long gone. Japanese businesses implemented the largest salary increases in three decades this year in response to an increasingly severe workforce shortage brought on by the country's ageing population.
"It's become much easier for companies to raise prices," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. "Whether this trend continues would depend on the strength of consumption."
The review clarifies the consequences of previous stimuli as well. The BOJ stated in many studies carried out as part of the assessment that long-term low rates hurt margins, which caused financial institutions' profits to plummet during the previous 25 years.
The BOJ's examination will not result in a revision to its policy framework, which integrates an evaluation of financial risks with its baseline economic forecast. Neither will it affect its 2% inflation objective.
However, it does demonstrate the bank's determination to raise short-term rates to levels that, according to economists, should be between 0.5% and 1.5% and neither chill nor promote economy.
Although the review's complete results won't be made public until later this year, some of the conclusions have already been made public and show Japan is making progress towards creating a cycle in which rising prices drive greater wages, which is a requirement for rate increases.
According to a May poll of 2,509 enterprises, many of them believe that an economy with rising prices and salaries is preferable than one in which both are stagnating.
Despite the fact that his pay increases have not kept pace with overall price rises, 56-year-old Junya Oyama of an electronics firm said he still finds inflation manageable.
"Young people might find it difficult to cope with rising prices, but higher prices are not giving me much trouble and are within the acceptable range."
(Source:www.netdiana.com)
The results would demonstrate how the central bank is defining boundaries for the drastic monetary stimulus implemented by previous governor Haruhiko Kuroda and crafting a new narrative to signal a return to more traditional policy that focusses on short-term interest rates.
The Bank of Japan has stated that the study, a hallmark initiative of Governor Kazuo Ueda, would not impact future monetary policy. The assessment examines the benefits and drawbacks of monetary easing measures implemented during the last 25 years.
However, the final result, which has not yet been made public in its entirety, will fundamentally alter the central bank's views on inflation.
"The Bank of Japan is utilising Japan's evolving social norm to support its estimate that inflation will sustainably reach 2% in the upcoming years - a requirement for interest rate increases," stated Nobuyasu Atago, a former BOJ official and current head economist at Rakuten Securities Economic Research Institute.
The study will support the central bank's argument that Japan's economy can withstand the effects of a gradual increase in the country's currently near-zero interest rate environment, according to two people who are familiar with BOJ's thinking.
"The key message is that Japan's deflationary norm has changed," one of the sources said. "It's essentially saying that Japan is ready for higher rates."
As investors flocked back to Big Tech stocks that had sparked widespread sell-offs earlier in the week, the BOJ attempted to shock the public out of a deflationary mindset with massive money printing under Kuroda's "bazooka" stimulus deployed in 2013. The BOJ aimed to achieve its 2% inflation target in roughly two years.
External circumstances, such as supply restrictions brought on by the epidemic and the war in Ukraine, finally achieved what the experiment failed to do by driving up import costs and maintaining inflation over 2% for well over two years.
Now, the central bank is using behavioural shifts in homes and businesses to explain why, in deputy governor Shinichi Uchida's words, "this time is different" in Japan's protracted deflationary war.
In a speech on May 27, Uchida described labour market shifts as fundamental and permanent, stating that Japan is on the verge of eliminating a "deflationary norm," or the belief held by people and businesses that prices and wages won't increase substantially.
In fact, despite differing opinions among the general public, Japanese consumers seem to be shedding the deeply ingrained belief that prices will never increase again that was formed during the crisis of the 1990s.
Aki Kuramoto, a 55-year-old mother of two who works in an office, is preparing for a time when costs will continue to rise.
She stated, "I think product prices would rise further and inflation would last for a while," as she was making her way through a Tokyo supermarket. "We need to be prepared for that."
According to the sources, Uchida's perspective on inflationary perceptions, given that he devoted the most of his central banking career to combating protracted economic stagnation, aligns with the review's overall thesis about structural shifts in the economy.
Core inflation, which touched 2.6% in June, has now been over the BOJ's 2% objective for well over two years after decades of primarily flat or negative growth.
Those days of hiring people at almost negligible salary growth are long gone. Japanese businesses implemented the largest salary increases in three decades this year in response to an increasingly severe workforce shortage brought on by the country's ageing population.
"It's become much easier for companies to raise prices," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. "Whether this trend continues would depend on the strength of consumption."
The review clarifies the consequences of previous stimuli as well. The BOJ stated in many studies carried out as part of the assessment that long-term low rates hurt margins, which caused financial institutions' profits to plummet during the previous 25 years.
The BOJ's examination will not result in a revision to its policy framework, which integrates an evaluation of financial risks with its baseline economic forecast. Neither will it affect its 2% inflation objective.
However, it does demonstrate the bank's determination to raise short-term rates to levels that, according to economists, should be between 0.5% and 1.5% and neither chill nor promote economy.
Although the review's complete results won't be made public until later this year, some of the conclusions have already been made public and show Japan is making progress towards creating a cycle in which rising prices drive greater wages, which is a requirement for rate increases.
According to a May poll of 2,509 enterprises, many of them believe that an economy with rising prices and salaries is preferable than one in which both are stagnating.
Despite the fact that his pay increases have not kept pace with overall price rises, 56-year-old Junya Oyama of an electronics firm said he still finds inflation manageable.
"Young people might find it difficult to cope with rising prices, but higher prices are not giving me much trouble and are within the acceptable range."
(Source:www.netdiana.com)