Many members say risks to prices are tilted to downside: BOJ minutes

By Stanley White

TOKYO (Reuters) – Many Bank of Japan board members said risks to consumer prices are tilted to the downside due to uncertainty about long-term inflation expectations, consumer spending, and the output gap, minutes of the central bank’s April 30 policy meeting showed on Wednesday.

Members agreed that the risks to economic growth are balanced but they warned that growth could slow temporarily due to a nationwide sales tax increase scheduled for the start of fiscal 2017.

The BOJ pushed back the timing of achieving its inflation target at the April 30 meeting, and indications that many board members are uncertain about the price outlook could fan expectations for additional monetary easing later this year.

“With regard to the baseline scenario for prices, many members expressed the view that there was considerable uncertainty, mainly in developments in medium- to long-term inflation expectations, and risks on the price front were skewed to the downside,” the minutes said.

The changed the time frame for achieving 2 percent inflation at the meeting to around the first half of fiscal 2016, which begins in April.

Previously, the BOJ’s official view was that it could achieve its target sometime around fiscal 2015.

The BOJ had to alter its time frame after a plunge in oil prices from last year wiped out gains in the consumer price index.

A few members, however, disagreed with the new time frame, arguing that consumer prices would not meet the central bank’s price target in fiscal 2017, the minutes showed.

Consumer spending has struggled to recover from an increase in the sales tax last year, which has vexed policymakers who were counting on big gains in consumption to drive prices higher.

Members agreed that a tight labor market and gains in wages should support consumption, but there were doubts about how quickly this would happen.

Members also said they need to monitor how quickly inflation changes in response to changes in the output gap, which measures the economy’s actual production against its potential output.

The minutes also showed that members want to monitor whether the fact that annual changes in consumer prices are close to zero will affect inflation expectations.

The BOJ has stood pat on monetary policy since expanding government debt purchases in October last year to prevent a slowing of inflation following the oil price slump from delaying achievement of its 2 percent inflation target.

(Reporting by Stanley White; Editing by Chang-Ran Kim and Eric Meijer)

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