BOJ members see need to persist with easing as inflation nears 2%

© Kyodo News

Bank of Japan board members said inflation will likely accelerate and stay around 2 percent for the time being due to higher commodity prices, but monetary easing should be maintained as the rise will be temporary, minutes of a March policy meeting showed Monday.

Some Policy Board members saw the need to explore better ways to communicate its view on underlying price trends, pointing to the difficulty ahead for the BOJ in justifying its decision to keep rates at an ultralow level when companies are facing higher raw material costs and price hikes are threatening to hurt consumer sentiment.

Unlike the United States and Britain, "Japan was not in a situation where the inflation rate would likely exceed the price stability target of 2 percent" over a prolonged period while seeing a wage-price spiral, the minutes said, citing views of some members.

It was, therefore, important for the central bank to continue with monetary easing to support the economic recovery from the pandemic, the members added, according to the minutes of the March 17-18 meeting.

Japan's core consumer price index, excluding volatile fresh food items, rose 0.8 percent in March from a year earlier, the fastest pace of increase in two years, amid higher fuel costs. Sharply lower mobile data fees remained a drag on the headline figure.

Economists expect the CPI will rise further from April when the effect of the cheaper mobile plans starts to fade on a year-on-year basis.

Some members expressed the view that the year-on-year rate of change in CPI would be around 2 percent for the time being but "It was necessary to consider the optimal way of explaining the bank's assessment of the underlying trend in prices and its outlook for prices," the minutes said.

One member said it is important to exclude prices of items subject to large fluctuations to assess the price trend but "relying solely on figures that exclude fresh food and energy -- items directly affecting people's daily lives -- carried the risk that the bank would face difficulties in gaining wide public understanding."

At the March meeting, the BOJ left its monetary policy unchanged. It set short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bond yields to around zero percent.

The recent bout of inflation in Japan comes at a time when the yen has depreciated sharply, inflating import costs for the resource-poor nation. The yen's fall against the U.S. dollar reflects a growing divergence in policy between the BOJ and the more hawkish U.S. Federal Reserve, which has entered a rate-hike cycle to rein in inflation.

In its April policy meeting, the BOJ strengthened its commitment to stem a rise in long-term Japanese interest rates by offering to buy unlimited amounts of 10-year Japanese government bonds at a fixed rate of 0.25 percent.

In the minutes, a few members said it was important to contain upward pressure on 10-year yields through various steps, including fixed-rate bond buying operations, to maintain "the economic stimulus effects from the monetary policy side."