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Today’s News
The Bank of Japan (BOJ) will probably adjust its yield curve control program at its policy meeting this month given that inflation is stronger than expected, according to a former executive director at the bank. “I expect they will make some kind of adjustment to YCC this month,” former director Hideo Hayakawa said in an interview. “If they don’t, it doesn’t make sense”, he added.
Hayakawa also predicted that the central bank would resort to raising its inflation outlook for this fiscal year to match reality.
That would mean that the central bank will also likely consider cutting its forecast for the following year to avoid fueling normalization calls by predicting inflation at or above 2% for three years in row, expressed Hayakawa. The BOJ’s estimate for next year is already at 2%.
BOJ watchers and traders are currently positioning for a policy decision on July 28 from the last global anchor of low interest rates. Barclays and Bank of America have already pushed back their policy change forecast to October from July this week. Meanwhile, financial market indicators signal traders are seeing more risk of a shift this month.
Other reports in Japan include:
Wholesale Inflation Slows For 6th Consecutive Month
Japan’s wholesale inflation slowed for a sixth straight month in June due to sliding fuel and commodity prices, signs that portray cost-push pressures that drive up consumer prices are steadily easing.
The data underscores the central bank’s view that consumer inflation is projected to experience a slow in the coming months as global commodity prices ease away from last year’s peak levels. “Sectors like beverage and food makers continue to pass on higher raw material costs. But the pace appears to be moderating,” Masato Higashi, head of the Bank of Japan’s price statistics division, told a briefing.
Household Inflation Expected To Rise
Japanese households’ inflation expectations rose in the three months to June, a central bank survey indicated, adding to growing signs that conditions for phasing out massive monetary stimulus may be falling in place.
The survey will be among the other factors the BOJ will scrutinize in producing new inflation forecasts at its 27-28 July rate review to make a final decision — to maintain its yield curve control policy that sets a 0% cap on long-term yields or resort to a policy tweak.
Rising Wages Reflecting Labor Shortage
Many regional areas of Japan saw small and mid-sized firms aggressively raising wages, reflecting its intensifying labor shortages, highlighting its growing conviction that wage hikes were broadening. A quarterly report indicates that the central bank also said some firms were considering raising the prices of their goods and services to guard against the prospect of rising labor costs.
The assessment suggests the country’s tight job market is emerging as a fresh factor that could sustainably keep inflation around the BOJ’s 2% projected target, meeting the condition the central bank has set for phasing out its massive stimulus.
