Written by Lika Kihara
TOKOUS (Reuters) – The Bank of Japan’s meeting passed last week without surprises, but for the BOJ observer, it is accurate than the need to stay in the event of alertness on food reluctance pressures, which had prices closer to the expected.
As with many other central banks, the extensive definitions of the Trump administration against its commercial partners have sparked uncertainty in the monetary track in Japan, where politics are taking care while trying to assess the economic effects of rapid explosions from American tasks.
However, it is possible that the signs of sticky food inflation, which add to the prospects for increasing sustainable wages, will keep the BOJ in the path to raise fixed rates on the contrary of greater price cuts referred to by its counterparts in the United States and European.
With the highlight of a problem that many major central banks wrestle with, the Governor of Boj Kazuo Ueda warned of the increasing uncertainty of the high American customs tariff on the global economy, in explaining the bank’s decision to maintain the interest rates fixed on Wednesday.
But BOJ can somewhat integrate the potential effect of Trump’s tariff in the quarterly expectations report at its next meeting on April 30 -1 May 1, indicating an average rate of the meeting that cannot be completely excluded despite the fact that the current consensus is that an tightening of the third quarter will occur.
It also balances concerns about global uncertainty with charity signals on domestic prices, indicating that BOJ was fixed in its intention to continue walking in the short term from the current 0.5 %.
Unlike previous statements that collide with food inflation as temporary, UEDA said that stubborn high food costs can have a permanent impact on the basic inflation and general perceptions of future prices – both factors that BOJ deems as a key to the speed and timing of prices.
“Usually, food costs are usually seen as the shocks that can be overlooked. However, the prolonged increase in rice prices means the risks of this rise that affects inflation and general feeling not minimal. As such, we will need to see such risks carefully,” said Uda.
Oda also stated that some in the Board of Directors “mentioned the need to remain vigilant to the risks of upward prices,” which is the rare revelation of actual deliberations at the meeting that highlighted the growing concerns within BOJ about local inflationary risks.
He added: “If the upscale risks of primary inflation increases, this will be a reason to accelerate the process of controlling the degree of cash support,” which is a clear indication that BOJ will not be ashamed of an early high rate of expected inflation expectations.
Food prices in Japan have risen because the costs of global commodities have risen after the Ukraine war, and remain high due to various factors, including high import costs from the weak yen. The high price of rice, caused by the bad crop last year from a hot summer, added to inflationary pressure.
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UEDA’s comments emphasize the increasing interest that BOJ puts on high food prices, which kept inflation above its goal nearly three years ago.
The basic inflation reached 3.0 % in February, when food prices increased by 5.6 % of the year levels, which is the fastest pace of the seventh month in a row. The basic rice in Japan has seen 81.4 %, which is the fastest pace for an increase in nearly half a century.
A source familiar with the bank’s thinking said: “You do not have a reading of reading by controlling the shocks of supply, such as high food prices, but the important thing is the time when this will continue.”
Another source said about the high food costs: “If it continues, it may financially change the way people see future prices and justify high prices.” Both sources spoke on the condition that his identity is not disclosed because they were not allowed to speak publicly.
Boj is certainly not in a hurry to raise rates with high wages so far to cause an increase in inflation in services, which amounted to 1.3 % in February. The long -term inflation forecast, which the central bank focuses on defining a , did not appear, that is, a severe deviation from the target of inflation by 2 %.
However, the fact that UEDA has put a sign that the risk of overcoming inflation is noticeable because the sign of uncertainty about Trump’s policies alone will not prevent BOJ from raising prices, says analysts.
“Boj is likely that you don’t want the market bets to decrease in the short term too much,” said Naomi Mugoroma, the chief bond strategy in the UFJ STCURITIERES.
“True, there are opposite winds blowing from Trump. But BOJ seems to be keen to rise as soon as the back wind starts. It wants to ensure that no price height has turned early into a surprise in the market.”
Currently, the dominant market view is that the BOJ team keeps shooting at the April 30-1 meeting to spend more time measuring the repercussions of Trump’s tariff policies.
A Reuters opinion poll showed that many analysts expect to raise the next rate of BOJ in the third quarter, most likely in July.
But some BOJ monitors see remote pay and prices as a good enough reason for the Central Bank to work as soon as May 1, including former BOJ official NoBuyasu Atago.
“I don’t think Boj has taken her opinion yet, but for me, UEDA’s statements seemed as if it had been a direct meeting,” said Atago, who is currently the position of chief economist at the Rakat Economic Research Institute.
“When the prices of goods often continue to rise for a long time, central banks need to act. I’m sure BOJ is very aware of the risk of leaving food inflation without observation.”
(Participated in the reports of Lika Kihara; editing of Shri Navarnam)
