BOJ worried about inflation ripple
Japan’s central bank is reportedly wary that inflation pressure tied to the Middle East conflict could complicate its policy choices, making it harder to raise rates without cooling the economy. The Bank of Japan’s caution was documented in reporting on April 11, indicating regional policymakers are factoring geopolitical risk into monetary decisions. The Japan Times covered the concern as part of broader regional macro risks. (japantimes.co.jp)
Bank of Japan officials are weighing whether higher oil prices tied to the Middle East conflict could keep inflation elevated even as the shock weakens growth. (boj.or.jp) That concern showed up in the Bank’s March 18-19 policy meeting record, released on March 30, where one member said the Middle East situation and higher crude prices should be treated as a risk scenario for markets and the economy. Another warned that rising gasoline prices and weaker corporate profits were already starting to affect Japan. (boj.or.jp) Fresh price data have sharpened the issue. Japan’s corporate goods price index, a measure of what companies charge each other, rose 2.6% in March from a year earlier and 0.8% from February, while petroleum and coal products jumped 7.7% from the previous month. (nippon.com) Reuters reported on April 10 that yen-based import prices rose 7.9% in March from a year earlier after a 2.7% gain in February, as the war disrupted the Strait of Hormuz and lifted crude prices. Markets were pricing about a 60% chance of a Bank of Japan rate increase at the April 27-28 meeting. (usnews.com) Japan’s problem is that higher rates can cool demand, while imported fuel inflation pushes prices up anyway. Deputy Governor Ryozo Himino told parliament on April 10 that if the conflict drags on and pushes down growth while accelerating inflation, it would create “a dilemma and difficult problem” for the central bank. (usnews.com) The Bank of Japan has already moved away from the negative-rate era and held its short-term policy rate at 0.75% in March. In its January outlook, the bank said quarterly forecasts are issued in January, April, July and October, putting the next full update at the end of this month. (boj.or.jp) Officials are also watching whether wage growth can keep up with higher living costs. The March meeting summary said many large firms met union pay demands in this year’s spring wage talks, but policymakers wanted to monitor smaller firms more closely as the Middle East shock unfolded. (boj.or.jp) The debate has reached Japan’s cabinet. Economic Revitalization Minister Ryosei Akazawa said on April 12 that Bank of Japan policy could be one option to curb prices by strengthening the yen, after an economist said a 10% to 15% rise in the currency could reduce import-driven inflation. (usnews.com) For now, the Bank of Japan is not saying the baseline outlook has broken down. But its own March record shows policymakers are now treating oil, shipping and currency fallout from the Middle East as variables that could shape the next rate decision. (boj.or.jp)
