Markets skeptical whether BOJ will change ultraloose policy

the BOJ has stressed the need for robust wage growth to attain stable inflation of 2 percent, fearing a premature tightening of monetary policy would derail its efforts.

Robust wage growth has not been the result of this policy for decades, but let's not change as we are building up steam and it might derail our "efforts".

The BOJ/LDP/Japan Inc. really have little respect for the intelligence of the Japanese worker.

The BOJ policies are generous welfare for the rentier/investor class.

https://www.spectator.co.uk/article/qe-the-ultimate-subsidy-for-the-rich/

Raise rates and lose the confidence of homeowners. Do nothing and squeeze all comsumers. The very definition of lose lose situation for the average person.

Major firms this year have offered wage hikes of an average 3.58 percent in annual pay negotiations, marking the highest increase in three decades, while the core consumer price index, excluding volatile fresh food items, has stayed above the BOJ's target for more than a year.

Offered? The word here should be implemented or "increased wages by an average of 3.58%", which is barely enough to keep even with prices increases and inflation and tax increases as well.

This news should have been posted Friday Evening when it became clear that the BOJ will do nothing this meeting. Spot was already heading towards 142 at 4:30 in the afternoon. We now look towards Septembers meeting.

Ueda is right in maintaining the BOJ’s low-interest rate policy since the recent rise in prices are mostly due to disruptions in supply chains: rising oil and food import prices and the war in Ukraine. Japan is still in the three-decade long deflation and demand is low.

The BOJ will do whatever the bureaucrats tell it to do.

Know what tends to fundamentally improve the economy, raise birthrates and generally make a country a more innovative? Immigration. Without doing something to fundamentally change business as usual, Japan's a sinking ball of mochi.

1.6%-2.6%? Not at my supermarket, gas station, utility bill, barber, airline, home center etc etc ad nauseam

again fabricated numbers.

go to nearest shop and check real prices for goods.

real numbers are way different...

I’d rather have some deflations compared to some countries inflation and the brutal pain it’s inflicting on the working class. Ofcourse the wealthy will do well no matter what the interest rates are and they’ll do well no matter what the stock market does. The stock market isn’t the economy. We might as well enjoy our money now, while we’re young. Because they want us to stay home, and just save save save, for the next 40 odd years. Then we can get some of it back to stay at home and pay for the grand kids.

BOJ is in a permanent semi comatose state - coming up with any rationale to justify sitting on their hands and not changing anything.

"1.6%-2.6%? Not at my supermarket, gas station, utility bill, barber, airline, home center etc etc ad nauseam"

Absolutely , the official govt inflation statistics are laughable.

 robust wage growth to attain stable inflation of 2 percent, 

we all know as soon as worldwide inflation abates, Japan will go back to its deflationary ways with stagnant wage growth, 2% stable inflation is a pipe dream for Japan

It seems inevitable that the rate gap between Japan and the US will narrow. Those earning yen will need to be patient for the next 12 months or so.

Know what tends to fundamentally improve the economy....Immigration.

I come from the country with the highest immigration rate in the OECD, and the place has become unlivable to a significant percentage of the population over the past few years It boasts the world's least affordable cities. Check out the Canada-related subs on Reddit if you want to hear horror stories about full-time working people living in cars, at parents, couch surfing etc, amid a dearth of available apartments. Also those who have lost access to medical services under the crush of an ever expanding population who need to taken care of amid falling real wages with much higher inflation than here.

I'm really glad I live in Japan, where the covid and China supply effects have been much milder, and people are being better taken care of, and the policies much more sensible.

Robust wage growth has not been the result of this policy for decades,

Corporations have raked in the highest profits in their history while home buyers pay almost nothing on their mortgages under the policy. The BOJ doesn't set wages. The problem is squarely that of a greedy and enriched private secto. The BOJ has done it's part already.

They are not going to change the ultra-loose policies. It would be end of the free money propping up a bunch of moribound Japanese businesses.

They rather that the population suffer from the raising cost of living.

I'll echo what everyone else has. 1.6% is ridiculous. I go to the quick cut salons, they went from 1,000 to 1,350 in the past couple years. Is that 2%? My go to milk went up 30yen, onigiri 25yen, chu hi 20yen, etc.

fa477279

Today 11:07 am JST

I'll echo what everyone else has. 1.6% is ridiculous. I go to the quick cut salons, they went from 1,000 to 1,350 in the past couple years. Is that 2%? My go to milk went up 30yen, onigiri 25yen, chu hi 20yen, etc.

Now ask how higher it will be along with rents and mortgage payments if Japan follows places like Canada.

2022-03-02 interest rate 0.5%

2022-04-13 interest rate 1.0%

2022-07-13 interest rate 2.5%

Etc..

Now 5.0%

And with that everything is up far more !

If people think only home owners are affected, think again, landlords will raise rents and it snowballs

If they raise the rates they have to literally print money and bonds to cover the debt of the bonds coming due. Which is what they are doing now and getting away with it. However there comes a point where the big money will bail out of the bond buying scheme, then the public will catch on as the wheels come off the bus

But we are not talking about Canada.

and no - the ultra loose policy won't be changing in the near future. The first thing to change will just be the same as last December. But only @JeffLee seems to understand that.

theResident

Today 12:43 pm JST

But we are not talking about Canada.

So you think Japan in in a different world?

Something happens everywhere if you raise rates

But Japan will not be raising rates anytime soon. You understand thats why the yen is weak, right?

Didn't think you did.

I’d be happy if the BOJ lost their war on deflation or kept their battle ongoing for a few more decades!

With Ueda at the head of BOJ, Japan is the last place where 20th century dinosaurs live.

Yen is dwindling, and surely will for the next years due to absence of immigration (which is good), lack of innovation, and dreadful demography.

@JeffLee

I come from the country with the highest immigration rate in the OECD, and the place has become unlivable to a significant percentage of the population over the past few years It boasts the world's least affordable cities.

As @theResident correctly pointed out we are not talking about Canada.

Vancouver is overpopulated (you guys invited all of Hong Kong to stay, remember?).

Japan is underpopulated, and has not much immigration at present.

These things make a difference.

simple test.

ask guy on photo how much costs 1 liter of milk.sure he will have no idea whatsoever...

From Japan's political perspective, a possible policy change later in the year would carry too much risk for equity markets, as a general election is likely to take place in the fall, analysts said.

I thought central bank were supposed to be independent from the government. After all this is their very raison d’être,

But after all this is the country where Abe said that the Bank of Japan was a subsidiary of the government!

This notion of the US interest rate hiking trend coming to an end bringing a reprieve to the yen seems incredibly wishful thinking to me.

Even if the BOJ eases up on the monetary policy a little, the government is running 40 trillion yen deficits and has no intention of slowing spending. Indeed the whole Japanese government acts like spending huge, vast sums of borrowed money on behalf of us tax payers is what needs to be done to help the economy.

So who is going to keep lending the government money if the BOJ eases up a bit? There are still many financially illiterate people in Japan who may put money in the bank and feel happy about a little interest even while inflation destroys the value of their savings.

But when people see their own money becoming worthless they will find better things to do with it.

The government would then have to offer more in return for borrowing the money.

Unless of course the BOJ or some other government attaches institution keeps taking the hit for the rest of us.

For the yen to strengthen sustainably, Japanese policy change is required. Not just the BOJ. The government too in fiscal policy. That’s my view. And I don’t see it happening, so any reprieve for the yen is a chance to sell more.

fxgai

So who is going to keep lending the government money if the BOJ eases up a bit?

The BOJ, which now holds most of Japan's so called "debt." And it's a public sector institution that rolls off the bonds so that the debt disappears while the principal and coupon revenue go back to the MoF. This is why Japan does what it does.

Also, social security funds including the world's biggest funds, and people, or more correctly corporations and organisations, that earn and spend tons of yen in international trade, given that Japan is the world's third biggest economy and second biggest one with a floating currency. They need to have lots of this reserve currency or liquid yen denominated securities to make their payments to the world's biggest creditor nation.

Your questions has been asked by lots of people over the past 20 years, including those who have lost their shirts betting against j-debt. Financial illiteracy can be a dangerous thing.

Yes Jeff,

The BOJ, which now holds most of Japan's so called "debt." 

That’s an option I noted in my comment. Literacy helps, let alone financial literacy.

But the subject is the BOJ winding back its easing, given that inflation is above target - aka there is too much money. Suggesting that the BOJ keep buying is just a call for ever higher inflation.

Also, social security funds

Why would social security funds suddenly allocate more to JGBs. There are myriad more attractive options.

corporations and organisations, that earn and spend tons of yen in international trade,

Suddenly they will have extra cash to start financing the government spending too, you think.

Financial illiteracy can be a dangerous thing.

quality argumentation you have there.

Look, even Ueda himself has written that the government must get its fiscal problem in order for an exit from the BOJ easing to be viable.

In Japan, a weak yen is more convenient for the economy than a strong yen.

The problem is that inflation is progressing, but workers' wages are not increasing along with it.

Since the late 1980s, Japan's average income has remained flat.

If there is anything the government can do, it has to increase the corporate tax on companies and use that as income to lower the taxes of the people and use it as a substitute for companies that do not raise labor costs.

Japan's debt is denominated in yen, and the government can make any amount of Japanese yen at the Mint. (If they did, it would be extreme inflation, so they wouldn't do it).

Even though Japan is said to be the world's largest debtor nation, about 95% of it is purchased by the Bank of Japan and is not a debt to foreign countries. In addition, Japan is the world's largest creditor nation.

Even if the government continues to issue deficit-covering bonds for a while, there will be no problem for a while.

Japan should be ok - the US Fed gonna stop raising interest rates. US inflation unexpectedly dropped a lot faster to 3% - already close to their 2% target

Betting aginst me, fine.

Let's discuss within a few years.

it has to increase the corporate tax on companies and use that as income to lower the taxes of the people

Corporations are people.

But yes lower taxes for people would be better than higher taxes for the people.

use it as a substitute for companies that do not raise labor costs.

For companies that don’t pay adequately, wouldn’t they struggle to retain workers and perhaps go out of business? Is there a benefit from trying to central plan this instead?

Even though Japan is said to be the world's largest debtor nation, about 95% of it is purchased by the Bank of Japan and is not a debt to foreign countries.

Is it not the case though, that the yen is a freely floating currency?

This is the pressure valve.

In addition, Japan is the world's largest creditor nation.

That I have some money invested overseas doesn’t mean Jack for the public debt situation, unless there is a plan to confiscate the private wealth of residents that I am unaware of. And that is not something that would give me comfort.

Even if the government continues to issue deficit-covering bonds for a while, there will be no problem for a while.

That sums it up well! Indeed things won’t go splat today. But it is the longer term one worries about.

Japan should be ok - the US Fed gonna stop raising interest rates.

But if you have say a 3% interest rate differential, while the loose money continues in Japan, you will feel more inclined to hang on to your yen?