by Leika Kihara
TOKYO (Reuters) – Something was missing from the Bank of Japan’s statement on rising inflation: the word “temporary”.
No longer signals that strong price gains will be short-lived, the central bank may soon go further to say they will be faster than expected for the rest of the year, in part due to the yen sliding to 24 yearly low, said three sources familiar with its thinking.
The Bank of Japan (BOJ) still expects inflation to slow next year, but probably not as fast as previously expected, they
This means the country’s ultra-easy money The policy, which keeps both short- and long-term interest rates near zero, may not last as long as forecasters think, although sources say stimulus will not be withdrawn anytime soon as the economy weakens.
A majority of 36 economists polled this month by think tank Japan Economic Research Center do not expect monetary policy to change until the end of next year.
But one of the sources describing the debate within the BOJ said: “Companies are passing on rising costs to households faster than expected. If consumption holds up, inflation may not be higher next year. How much will it slow down?”
Consumer inflation expectations are also rising, with price increases clearly spreading to items not directly affected by fuel increases in deflationary countries
Until June, BOJ officials often described the potential uptick in inflation as “temporary” in speeches and internal policy discussions. But they stopped doing so in July at the policy meeting, according to the minutes and minutes of the meeting.
While the speech was public, few (if any) people noticed the adjustment.
“This is probably not the best language to describe what is going on in the global and domestic inflation landscape,” the second source said on the word “temporary.”
Last year other central banks, notably the US Federal Reserve, the European Central Bank and the Bank of England, also said the rise in inflation was only temporary. Unprepared, now they are raising rates far more than
price pressures
in the latest evidence of rising price pressures in Japan, excluding fresh food but including fuel costs Annual core consumer inflation hit a seven-and-a-half-year high of 2.4 percent in July, surpassing the Bank of Japan’s 2 percent target for the fourth straight month.
The Bank of Japan currently forecasts that interest rates will fall below 2% next year.
Nearly 90% of Japan’s listed food companies may plan to raise prices this year, four times as many as last year. Private research firm Teikoku Databank.
These increases affect more than , 000 food, the average increase 14%. One-third of the growth plans came into effect in October, suggesting inflationary pressures could intensify later in the year.
Most BOJ policymakers now expect core consumer inflation to hit 3 percent in October, with some expecting upward pressure to continue into next year, sources said.
A consumer price index excluding fresh food and fuel costs – closely watched by the Bank of Japan as a key barometer of domestic demand – rose 1.2% in July from a year earlier, the fourth straight month to achieve annual growth.
Some BOJ officials see the possibility of inflation reaching 2 percent in the coming months, sources said.
They forecast that a stronger price outlook will lead the Bank of Japan to raise its inflation forecast when it next revises its quarterly forecast in October.
The key is whether wages will start to rise as the cost of living increases. Only if wages are growing faster will Japan experience the persistent demand-driven inflation rise that the BOJ is seeking to achieve.
Currency Movements
The Role of Weakness Yen, which has lost nearly 20% year-to-date, is becoming the focus of the Bank of Japan Focus.
“Monetary movements are one of the key factors affecting the BOJ affecting the economy and prices. For the BOJ, the impact on prices deserves special attention,” a third source said, indicating that Rising inflationary pressures from a weaker yen will be a key topic in the bank’s public communications in the coming months.
There are early signs that Japan is finally losing its sticky deflation mentality. A government survey showed that in August, more than 90% of households expected prices to increase in the next 14 months, with nearly 60% is expected to grow by 5% or more.
But there is also uncertainty about Japan’s growth prospects as the U.S., European and Chinese economies face headwinds.
“Cost-push pressures are intensifying at an unprecedented level, prompting companies to raise prices. Some profitable companies are also raising wages,” Goushi, a former BOJ board member Said Kataoka.
“The problem is that the global economy may enter a trough before this positive cycle gains momentum.”
