–Board Members Continue Calling for Supporting Wage Hikes With Easing
By Max Sato
(MaceNews) – Bank of Japan board members argued for monitoring the impact of the resurgence in new Covid cases for now before deciding whether to end the program to support pandemic-hit small businesses in September as scheduled, according to the summary of opinions expressed at the bank’s July 20-21 meeting released Friday.
The summary, a preview of the minutes to be issued on Sept. 28, also showed board members continued to stress stable inflation around the bank’s 2% target must come with wage hikes, and that to this effect, the bank should maintain its monetary easing stance.
The bank decided in December to end parts of its anti-Covid special financing program aimed at supporting large firms, whose financial conditions had improved, at the end of March 2022, while extending its feature of helping hard-hit small businesses, particularly those in the service sector, for six months until the end of September.
“The recent resurgence of COVID-19 is extremely rapid, and it is necessary to examine how this will affect financial positions, mainly of small and medium-sized firms,” the summary said. “Thus, it is appropriate that the Bank decide on the treatment of the Special Operations to Facilitate Financing in response to COVID-19 at the September MPM (monetary policy meeting).”
“Although the Special Operations to Facilitate Financing in response to COVID-19 have had their intended effects and seem to be finishing their role, the decision regarding the operations should not be made at this MPM in the face of the resurgence of COVID-19.”
While Japan’s economy is on its way to recovery from the pandemic, it has been under downward pressure due to an outflow of income from Japan caused by high commodity prices, one member noted. “In this situation, it is appropriate that the Bank encourage wage increases through monetary easing, aiming to achieve the price stability target in a sustainable and stable manner.”
“In order to achieve the price stability target while increasing the likelihood of wage inflation, it is appropriate for the Bank to continue with the current monetary easing,” another member noted.
“As the output gap has been negative for more than two years, the Bank should persistently continue with the current monetary easing, which supports an expansion in demand and sustained wage increases,” a different member said, echoing recent remarks by Governor Haruhiko Kuroda.
At a post-meeting news conference, Kuroda made it clear once again that the bank’s policymakers are “not considering raising interest rates at all” given their latest outlook that domestic inflation is unlikely to be anchored around its 2% target in the next few years. He also repeated his recent remarks that the rapid depreciation of the yen “undesirable” because it makes it hard for businesses to formulate plans.
At its July meeting, the nine-member board decided, as expected, in an 8-to-1 vote to maintain its current monetary easing stance under the yield curve control framework it adopted in September 2016, vowing to keep zero to negative interest rates “as long as necessary” to achieve its 2% inflation target in a stable manner.
To keep speculative market forces from pushing the long-term bond yield beyond its defense line, the bank will continue offering to buy 10-year Japanese government bonds at a fixed rate of 0.25 percent every business day through market operations “unless it is highly likely that no bids will be submitted.” The board decided to introduce this new market operation at its last meeting in April.
The bank has been guiding the 10-year JGB yield around zero to maximize the impact of monetary easing but it allows market rates to fluctuate between minus 0.25% to plus 0.25%.
Asked if the bank could estimate how much a rate hike would push down economic growth, Kuroda told reporters after the meeting, “If we were to assess what impact an interest rate hike would have on the economy at this stage, it would probably be much bigger than economic models suggest. We are not at all considering raising interest rates under the yield curve control framework, or changing the range of plus 0.25% to minus 0.25%.”