Japan maintains stimulus measures despite inflation fears
The Bank of Japan must continue its current monetary stimulus to generate long-term gains in prices, corporate profits, employment and wages.
This was revealed to Reuters by Deputy Governor Masayoshi Amamiya, who dismissed rumors of an early withdrawal from the dovish settings.
Although inflation in Japan is considerably lower than levels seen in the United States and elsewhere, the BOJ is well behind other major central banks in reducing stimulus in crisis mode.
Nonetheless, rising global commodity prices and a falling yen fueled cost inflation, stoking investor fears that the BOJ could abandon its current stimulus package.
What BOJ says
Masayoshi Amamiya shrugged off the possibility of a quick exit from stimulus policy. “The important thing is to continue our powerful monetary easing to firmly support the economic activity of businesses and households. Amamiya told lawmakers.
If monetary support is removed suddenly, the economy will face downward pressure, making 2% inflation even more elusive, according to Amamiya.
The Ministry of Finance, which is responsible for monetary policy, holds foreign exchange reserves worth $1.35 trillion which it can draw upon when needed for monetary intervention through the BOJ, Suzuki said, without giving further details.
What you should know
- Today, Japan seems to be experiencing the wrong kind of inflation. BOJ Governor Haruhiko Kuroda’s goal was to establish a so-called demand-driven virtuous cycle in which higher-earning workers go out and spend more, increasing demand, driving additional investment and, eventually, higher salaries.
- Instead, rising costs abroad will increase prices and cause customers to buy fewer items, not more. The situation is particularly serious in Japan, where resources are scarce, where almost all raw materials and basic products are imported.
- This represents more than 60% of total food consumption and more than 95% of total energy consumption, mainly through oil imports. With relatively calm global commodity markets over the past decade, this hasn’t been a major concern so far, but wheat and natural gas are both in the crosshairs following the invasion. of Ukraine by Russia, and the problems are likely to get worse.
- The numbers so far have been modest by global standards. While the US consumer price index rose 8.5% year-on-year in March, the highest rate since 1981, the Japanese index rose only 1.2%.
- Other numbers were mind-boggling by Japanese standards. Energy costs jumped 20.8%, the biggest increase since 1981, while cooking oil rose 34.7%. Another measure of inflation at the wholesale level, the business goods price index jumped 9.5% year-on-year in March, partly due to the dire situation in Ukraine.