Bank of Japan withdraws tightening trend, citing lack of inflation

TOKYO – The Bank of Japan kept monetary policy super-loose and expressed minimal concerns about inflation, joining mainland Europe suggesting that the recent tightening in the US is not necessarily a phenomenon. Global.

The

Bank of Japan

on Friday maintained its short-term interest rate target at minus 0.1% and said it would continue to drive 10-year Japanese government bond yields towards zero, much lower than the US, where equivalent government bonds yield more than 1.4%.

Japanese consumers see little price pressure on Americans, with overall consumer prices rising just 0.1% in October from the same month a year earlier. Prices actually fall if energy groups and volatile fresh foods are excluded.

“While prices may not fall all the time, and there may be some upside risk, there is little chance of inflation hitting or above 2%. [in Japan] like in the US and Europe,” Bank of Japan Governor Haruhiko Kuroda said at a news conference on Friday. “I don’t think the BOJ will move towards normalizing monetary policy.”

As the cost of groceries, clothing and electronics rises in the US, prices in Japan remain low. WSJ’s Peter Landers goes shopping in Tokyo to explain why steady prices, while good for your pocket, can be a sign of a slowing economy. Photo: Richard B. Levine / Zuma Press; Kim Kyung Hoon / Reuters

Mr. Kuroda’s stance is similar to that of European Central Bank President Christine Lagarde, who said on Thursday that she does not expect a rate hike in 2022. The ECB also left unchanged. open-ended bond buying program, surprising some analysts, though it called for bond buying to be scaled back next year.

United States, Inflation hits 39-year high in November, and Federal Reserve officials this week raked in at least three-quarters of a point rate of increase next year.

On Thursday, the Bank of England became the first major central bank to increase its policy rate since the pandemic started. Prices in the UK rose 5.1% in November from a year earlier, the biggest annual increase in a decade.

The situation of the US and UK is not shared in many other parts of the world including Asia. In Japan, commodity demand Cars are relatively good, for example, and wages are only growing slowly, so companies fear they will be punished if they try to pass on higher costs to consumers.

“Experience tells us [higher prices] Naomi Muguruma, economist at Mitsubishi UFJ Morgan Stanley Securities, said there would be a drop in sales as consumers switch to other products and spend less. “Unless income conditions improve to the point where consumers can catch up with price increases and continue to spend, consumer prices are unlikely to rise,” she said.

However, some companies said they could no longer afford to shoulder the higher cost burden themselves. Corporate commodity prices in Japan hit a 41-year high in November, up 9% from a year earlier. In late October, restaurant operator Yoshinoya Holdings Co. raised the price of its signature beef bowl by 34 cents, citing higher energy and imported beef prices.

In hopes of creating an efficient cycle of higher incomes and consumer spending, Prime Minister Fumio Kishida has promised to increase tax incentives for companies that raise wages. He is also increase government spending with a stimulus package worth $490 billion. The National Assembly will pass an additional budget to support stimulus this month.

The Bank of Japan already owns about half of the government’s outstanding bonds and has pledged to buy as many as possible to keep the yield on the 10-year bond at zero. Shigeto Nagai, an economist “Central bank support” will become increasingly indispensable for governments to keep fiscal policy hands-free,” said an economist at Oxford Economics and a former BOJ official.

While keeping its zero-interest rate policy in place, the Bank of Japan scaled back a program introduced in the early days of the pandemic in 2020. At the time, the BOJ said it would raise holdings of commercial paper and corporate bonds to ¥20 trillion, or $176 billion, ensuring large companies will have short-term cash access.

Recently, “issuing conditions have been extremely favorable,” BOJ Vice Governor Masayoshi Amamiya said this month, so the BOJ said it will dial corporate credit asset holdings to a total of about 5 trillion yen before the pandemic.

Write letter for Megumi Fujikawa at megumi.fujikawa@wsj.com

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https://www.wsj.com/articles/japans-central-bank-shuns-tightening-trend-citing-lack-of-inflation-11639733579 Bank of Japan withdraws tightening trend, citing lack of inflation

Ethan Gach

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