BOJ at critical juncture in monetary policy


The Bank of Japan faces a crucial test this year for its monetary policy amid lingering uncertainty over prices.

The central bank is now aiming for inflation of 2 percent “around the second half” of fiscal 2016, which starts in April, under its policy of monetary easing.

But the pace of growth in consumer prices appears unlikely to accelerate for the time being. One factor in this is cheap oil, which eases the costs of manufacturing.

Analysts believe the financial markets may increase pressure on the BOJ for additional easing if inflation remains low.

In gauging price trends, the BOJ is paying close attention to the movements of the consumer price index, a tally that excludes the often-volatile prices of fresh food and energy.

In November 2015, the index rose 1.2 percent year-on-year, mainly because of rises in food prices.

BOJ Gov. Haruhiko Kuroda has sounded bullish.

“Japan’s price trend has been steadily improving,” he has declared. “An exit from deflation is certainly coming into sight.”

The growing CPI is not the only positive factor. Some companies have been hiking the prices of their products, passing on increased costs of materials because of the weaker yen.

Still, many economists predict the CPI’s growth rate to start decelerating in the spring.

Junichi Makino, chief economist at SMBC Nikko Securities Inc., said the weak yen’s effect of pushing up prices will dissipate, while pay hikes likely to be agreed in this year’s shunto spring labor-management talks will be smaller than those last year.

The BOJ will monitor the shunto negotiations closely, as it hopes wage hikes will result in greater household spending and thereby boost inflation.

But some analysts warned it remains uncertain whether wage hikes will spread to a wide range of business sectors, given that the rate of economic growth in China and other emerging nations is declining.

The BOJ would be forced into additional easing if the yen climbs and the stock market tumbles, Yasunari Ueno, chief market economist at Mizuho Securities Co., said.

Other economists have shown similar concerns. And critics agree that the BOJ has its work cut out this year to push the nation into 2 percent inflation.