Currencies / Foreign Exchange Markets

TOKYO (Reuters) – The Bank of Japan is expected to maintain the status quo on monetary policy at its monetary policy meeting on June 27-28. Multiple sources said. Although upward pressure on prices is increasing at present, the 2% inflation target is still far from being achieved in a sustainable and stable manner amid high uncertainties in overseas economies, etc. .

Yield curve control (YCC) will continue, and the fluctuation range of the 10-year interest rate will remain unchanged at about 0.5%. Regarding the distortion of the yield curve, which was seen as a problem at the beginning of the year, Governor Kazuo Ueda pointed out that it is “generally smoother than before.” After the fluctuation range of long-term interest rates widened in December last year, the Bank’s measures for money market operations, such as the expansion of operations on common collateral and the raising of minimum lending rates for the complementary supply of government bonds, have achieved their intended effects. There is a view that there is.

The decision-making meeting starting on the 27th will be the first decision-making meeting under Governor Ueda. Regarding the forward guidance of monetary policy, it is expected to discuss the pros and cons of deleting the part that said, “We will closely monitor the impact of the new coronavirus.” However, even if this wording is amended, we will maintain the part that indicated room for future reductions in the policy interest rate, stating that “it is assumed that the policy rate will remain at or below the current level of short- and long-term interest rates.” It is expected that the central bank will emphasize its policy of continuing monetary easing.

At the decision-making meeting, the “Outlook for Economic Activity and Prices” (Outlook Report) will also be discussed. For fiscal 2025, when forecasts will be added from this time, the outlook for the consumer price index (excluding fresh food and core CPI) is likely to be in the high 1% range year-on-year.

Some members have a bullish view on the future of prices, so there is a possibility that the growth rate will be in the 2% range. As a result, there are many voices saying that it is difficult to predict that the price target will be achieved in a sustainable and stable manner.

Monetary policy is expected to remain unchanged at its April meeting, but some within the BOJ say the YCC could be revised once the final results of this year’s spring labor offensive are revealed. According to the fourth round of the spring labor offensive, which was announced on the 13th, the rate of increase in wages, including regular wage increases, was 3.69%, and there are many voices within the Bank of Japan saying that the rate of increase is higher than expected. At the meeting of branch managers on the 20th, there were many reports that, in response to the growing sense of labor shortages and rising prices, even small and medium-sized enterprises have implemented bare wages for the first time in a long time, and that “movements for wage increases are spreading.”

Those who anticipate an early revision of the YCC believe that if the final tally of the spring labor offensive, which is usually released in early July, confirms the wage increase rate, including that of small and medium-sized enterprises, it will be possible to revise the policy.

However, the early policy revision theory is limited to the BOJ at this point. Governor Ueda said at a press conference on the 12th that the BOJ should pay more attention to the risk of prematurely ending monetary easing and failing to achieve its 2% inflation target, rather than the risk of a delay in responding to rising prices. It has said.

At the moment, skepticism stands out at the Bank of Japan as to whether next year’s spring labor offensive will be as strong as this year’s. There is a possibility that the slowdown of the US economy will intensify in the second half of the fiscal year. The manifestation of the US economic slowdown could cast a shadow over the movements of both labor and management in preparation for next year’s spring labor offensive.

The BOJ believes that a hasty revision of monetary policy before expectations for sustained wage increases turn into “confidence” will cool people’s sentiments, leading to wage increases leading to consumer spending and corporate price hikes. Some have pointed out that this could have a negative impact on the virtuous circle that the Bank of Japan is aiming for.

(Takahiko Wada, Reika Kihara Editing: Hitoshi Ishida)