BoJ says Japan is in ‘critical phase’ to achieve price stability

By: News Team

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BoJ says Japan is in 'critical phase' to achieve price stability

The minutes of the last meeting of the Bank of Japan (BoJ) held on December 19 and 20 show that the monetary policy board considers that the country is in a “critical phase” to achieve the desired goal of stabilizing the rise in prices around 2% and that it is therefore necessary to “continue with monetary easing”.

Board members considered that the world’s third largest economy has begun to see signs of the so-called “virtuous cycle” that was pursued when its great flexibility plan was activated a decade ago.

That cycle involves ensuring that an increase in corporate profits translates into consistent wage increases, something for which the conditions currently exist in the archipelago, where the labor market is tremendously tight.

However, they point out, the objective has not yet been met and therefore it is necessary to keep the price of money low and control the yield curve.

At its meeting last week, the BoJ decided to maintain its negative benchmark interest rates and the target of long-term government bonds hovering around 0%, but extended the trading range for these assets, something that some interpreted as a first step towards monetary tightening.

However, some board members dismissed this possibility, noting that “the widening of the range of fluctuations of Japan’s 10-year sovereign bond is not aimed at changing the direction of monetary policy.”

“This is a tool of our policy to make the current monetary easing, which is carried out with the objective of achieving the 2% price stability goal, more sustainable amid global inflation by improving the functioning of bond markets,” one of the board members specified.

In that sense, members of the agency stressed that “the functioning of the bond markets has deteriorated” and the danger of affecting financial balance sheets and hindering the achievement of the desired inflation of 2%.

Japan has been registering price increases above 3% in recent months – well below the very high inflation that many large economies are suffering – and the BoJ considers in fact that these are short-term increases in the CPI due to the global increase in energy and raw materials.

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