The new monetary easing measures decided on October 31 by the Bank of Japan (BoJ) had surprised the markets. The yen was again weak and Tokyo stock market had experienced several strong increases, reaching, by November 4, the milestone of 17,000 points, a seven year high.
As the Japanese economy is in recession, the decision to increase the monetary base by 60,000 – 70,000 billion yen (507.6 – 592.2 billion U.S. dollars) to 80,000 billion yen (676.8 billion US dollars) annually and the increase in asset purchases from 50,000 to 80,000 billion yen (from 423 to 676.8 billion U.S. dollars), was the subject of intense debate.
All of these measures were adopted five votes against four by the council of monetary policy of the central establishment. These differences appear in the minutes of the discussions of October 30 and 31, made public on Tuesday, November 25.
Strong price pressure
Regarding the economic situation, the council of the BoJ notes a moderate recovery in the world, “with limited performance in some areas,” especially in Europe.
For Japan, the central establishment noted improvements in exports and a resistance of household consumption, despite the increase in the consumption tax (VAT) from 5% to 8% on April 1. The institution sees the Japanese economy in “moderate recovery”.
At the same time, participants noted strong pressure on prices, limiting their rise. This is associated, in their eyes, with “the weak developments in demand after the increase in consumption and a significant decline in oil prices.”
The bank estimates that inflation will remain outside direct effects of the consumption tax, around 1% for “some time, mainly because of the effects of the oil price decline.”
In this context, the central institution could revise downward its forecast made in July to the price increase in 2015.
One member of the Board has found that the moods of the population changed. “They are based more on the idea of moderate inflation.” Something for Mr. Kuroda, who argues for a change in the “deflationary mentality,” still dominant in the archipelago.
On Tuesday, the BoJ Governor Haruhiko Kuroda again called on companies to increase wages, but also the investment to help the country fight out the deflation.
Questions about the effects of monetary easing
In this context, and considering that the Bank of Japan has set a target of a 2% of annual increase in prices in 2015 and does not wish to deviate, new easing measures were discussed.
Several members in favor of these measures have stressed the importance of “explaining that the involvement of the central establishment inflation remains unwavering.” For one of them, “not to adopt new measures could be considered a waiver and significantly affect the credibility of the Bank of Japan.”
Conversely, one member expressed concern about the effects of these measures, “which might not be worth the cost of their implementation.”
Others have mentioned the risk of “further deterioration of market operations” or questioned the “real sustainability of their effects.” Another reservation is that of seeing the new measures “considered a de facto financing of government deficits.”
Government officials have issued quite favorable opinions on the proposed measures. “They aim to support the positive cycle of the economy and thus promote sustainable growth,” said Ichiro Miyashita from the Finance Ministry, before the final vote.
Inflation continues to slow in Japan
Inflation in Japan slowed in October for the third consecutive month, mainly because of lower oil prices. The consumer price, excluding those of perishable products, rose 2.9% in October, recording a further slowdown (+ 3% in September), as announced on Friday, October 28 the Ministry of Internal Affairs.
Excluding the impact of rising of the consumption tax early in April, which pumps up the inflation by around two points, rising 0.9% in spring, according to the calculation method proposed by the Bank of Japan (BoJ), below the target it has set for the year 2014 to 2015 (1.2%).
Reverse for economic policy
Official statistics paint a poor picture of the economy, ahead of early elections on November 14, presented by Prime Minister Shinzo Abe as a referendum on “Abenomics”.
Despite being a growing target of criticism, this policy is, according to him, the only way to revive the economy that has been faltering for two decades. After a promising debut and praise around the world, “Abenomics” recently accumulated setbacks, as the archipelago is reviving the recession in the third quarter in the wake of a rise in VAT.
In the series of figures published yesterday, economists, however, noted some “positive signs”:
- Entrepreneurs show improved morale, and so do manufacturers, according to a survey conducted by the Ministry of Economy.
- Industrial production has marked its second consecutive monthly regain, although very modest (+ 0.2%).
- Exports appeared to have recovered recently: the Japanese expect a further rebound in production in November (+ 2.3%), before a modest increase of 0.4% in December.
- Above all, unemployment is down again last month to 3.5% of the labor force, as in May and August, a record low since December 1997 due to a decline in the proportion of women looking for work.
The official recognition method certainly tends to minimize the figures excluding those working only for a few hours per month, but the improvement is real in recent months. In October there were 110 vacancies for 100 applications, a new ratio for more than two decades, welcomed the Ministry of Labour. The question is whether this sustainable upturn will result in wage growth, the key to revival of demand and the fight against deflation.