BOJ price outlook clouded by rising commodities and weak spending

A man wearing a protective mask walks past the Bank of Japan headquarters amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS / Kim Kyung-Hoon

  • Rising input costs could weigh on economy – BOJ minutes
  • Wholesale inflation is accelerating and could spill over into consumer prices
  • Some members warned of slow wage growth and a deflationary mindset
  • Member called for more ideas to help Japanese economy
  • The BOJ kept its policy stable in June and unveiled a climate program

TOKYO, July 21 (Reuters) – Policymakers at the Bank of Japan saw the price outlook clouded by rising global commodity prices and weak consumption, according to the minutes of their June meeting, highlighting the central bank policy conundrum caused by the COVID-19 pandemic.

Japan has not been immune to global commodity inflation, as companies see input costs rising, although consumer prices have barely increased unlike those of other advanced countries which are reopening. their savings.

“Many members have said that domestic wholesale inflation is rising reflecting global increases in commodity prices, which could push up consumer prices on the road,” the review minutes showed on Wednesday. BOJ rate in June.

A member said consumer inflation in Japan could accelerate in the second half of this year as demand recovers from the initial hit of the pandemic, according to the minutes.

But others have warned that slow wage growth and Japan’s stubborn deflationary mentality could moderate such inflationary pressures, according to the minutes.

“Once we start to see pent-up demand emerge, prices for services could exceed. But there is also a risk that prices will be lower given the high uncertainty over the wage outlook,” said a member.

Some members of the nine-member board of directors also warned that the rise in prices of various products, although largely due to robust global demand, could drive up costs for businesses and dampen the Japanese economy, according to the minutes.

“The prices of various products are rising. If this persists and companies do not pass on the higher costs, it could worsen Japan’s terms of trade and weigh on the economic outlook and prices,” a few quoted members said. .

At the June meeting, the BOJ kept its monetary policy stable and unveiled a plan to create a new program to increase funding for activities aimed at tackling climate change. Read more

A member said the central bank needs to consider various ideas on how it could help the Japanese economy make a smooth transition to a post-pandemic world, according to the minutes.

Wholesale prices in Japan rose 5.0% in June from a year earlier after jumping 5.1% in May, their fastest pace since 2008, fueled by rising raw material costs . Read more

But basic consumer prices, the BOJ’s preferred measure of inflation, rose only 0.2% last month as weak domestic demand prevented companies from passing on the higher costs. Read more

In new quarterly projections released in July, the BOJ raised its forecast for core consumer inflation to 0.6% from 0.1% for the fiscal year to March 2022. But it predicted that the inflation would remain below its target of 2% in the coming years. Read more

Reporting by Leika Kihara; Editing by Chang-Ran Kim Editing by Shri Navaratnam

Our Standards: Thomson Reuters Trust Principles.

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