BOJ policymakers admit time needed to hit price target: September minutes

EghtesadOnline: A majority of Bank of Japan policymakers believe it could take time for inflation expectations to firm, underscoring lingering doubts on how effective the BOJ's new policy framework would be in achieving its ambitious 2 percent price target.

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07 November 2016

The nine board members also disagreed on whether the BOJ's massive stimulus program would help spur public expectations of future price rises, minutes of the central bank's September policy meeting showed on Monday.

The minutes suggested that the make-over of the BOJ's policy framework in September had done little to narrow differences within its fragmented board and may reinforce doubts among investors on the BOJ's ability to cast off years of deflation amid its dwindling policy ammunition, according to Reuters.

"Some members said firms' cautious price-setting behavior might continue for longer than expected," as recent declines in consumer prices prevent inflation expectations from heightening, the minutes showed.

"Many members expressed the view it could take time for (the BOJ's policies) to heighten inflation expectations," according to the minutes, which did not specify how many of them agreed to the view.

At the Sept. 20-21 meeting, the BOJ switched its policy target to interest rates from base money - or the pace of money printing - after years of massive asset purchases failed to jolt the economy out of stagnation.

Under a new "yield curve control" (YCC) framework, the BOJ's main easing mechanism would be to deepen negative interest rates, accompanied if needed by a cut in its 10-year government yield target.

While ditching its base money target, the central bank left a loose pledge to keep buying government bonds at the current pace in a move largely seen as a compromise to advocates of aggressive money printing on the board.

"One member noted that a long-run relationship between the monetary base and inflation expectations was not observed," the minutes showed.

Another board member countered the argument, saying that such a relationship "existed theoretically," because the BOJ's aggressive money printing could boost public sentiment by weakening the yen and boosting stock prices, the minutes showed.

Several board members echoed the view voiced publicly by Governor Haruhiko Kuroda that the new framework would make its monetary policy more flexible by allowing it to directly target interest rates rather than trying to indirectly influence them through bond purchases.

But one member said achieving both the interest rate targets and maintaining a loose goal on the pace of bond buying at the same time was "difficult," the minutes said.

Japan's core consumer prices fell for a seventh straight month and household spending slumped in September, underscoring the challenges of hitting the BOJ's 2 percent inflation target.

In a glimmer of hope, however, data on Monday showed real wages rose for the eighth consecutive month in September, which could support consumption in coming months.