Latest news with #NobuyasuAtago
Zawya
27-06-2025
- Business
- Zawya
In dovish tilt, BOJ zooms in on obscure underlying inflation trends
TOKYO - The Bank of Japan's increasing caution around raising interest rates further relies heavily on a relatively obscure inflation reading, which policy doves argue suggests weak consumer demand but critics say messes with the bank's messaging. Underlying inflation in Japan, which focuses on the strength of domestic demand and wages rather than volatile food and fuel, has been tracking below the Bank of Japan's 2% target. That contrasts starkly with headline inflation numbers that are above the target at multi-year highs, riling the public and until recently providing strong arguments for further interest rates. Analysts say the BOJ's fresh concerns about local consumption and the global economy have muddled its efforts to manage inflation expectations in a country that spent decades mired in deflation. "The unprecedented nature of what the BOJ is doing, and a lack of track record anchoring inflation expectations, are reasons why the BOJ is using the fuzzy concept of underlying inflation," said former BOJ official Nobuyasu Atago, who is currently chief economist at Rakuten Securities Economic Research Institute. "That's complicating its communication and making it difficult to understand what exactly they are trying to do." From a policy perspective, BOJ Governor Kazuo Ueda has already acknowledged the challenges of both resetting inflation expectations and trying to precisely measure underlying inflation. "We have managed to de-anchor expectations from zero, but have yet to re-anchor them at 2%," he said in a speech last month. "This is why we are still maintaining an accommodative policy stance." GUIDANCE MISMATCH On the face of it, Japan has an inflation problem, which is why its central bank is one of the few in the world that has raised rates in recent years as others cut. Headline consumer inflation hit 3.6% in April, well above 2.3% in the U.S. and the second highest among G7 advanced nations following 4.1% in the UK, according to OECD data. Other consumer price measurements, such as the core index stripping away volatile fresh food and the "core-core" - which also excludes fuel costs - have also stayed above the BOJ's 2% target for about three years. While there is no single indicator that gauges "underlying inflation", the BOJ looks at its own recalibrated measures such as the weighted median and the "mode", both of which are currently below the bank's 2% target. Other proxies the BOJ says it monitors include medium- and long-term inflation expectations, which it estimates as moving above 1.5% but slightly below 2.0%. A chart attached to recent BOJ speech texts also includes services price inflation as a key measurement of underlying inflation which, at 1.4% in May, also remains below 2%. Those trends coupled with worries about the economic hit from higher U.S. tariffs partly explain why the BOJ has signaled a pause in interest rate hikes after lifting them to 0.5% in January. However, there is still ambiguity around just what exactly vexes the BOJ. "For the average household, what matters is the price of food and grocery, not fuzzy concepts like underlying inflation," said a source familiar with the BOJ's thinking. "Even when looking at various indicators, underlying inflation is already pretty close to 2%," the source said, a view echoed by another source. To be sure, the BOJ expects the gap between headline and underlying inflation to narrow if the rise in food prices moderates and prospects of steady wage hikes underpin consumption. The central bank has also said it will keep raising rates if there is enough conviction that underlying inflation will hit 2% - a call the board makes looking not just at price moves but the economic outlook and its risks. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. A key challenge for now remains in how it communicates its cautious position, especially if domestic food inflation and the Middle East conflict persist and lead to an upgrade in its price forecasts at the board's next review on July 30-31. That question is also creating divisions within the BOJ board. Critics warn such dovish guidance could leave the bank behind the curve in addressing inflation risks. "I personally believe focus should be placed on inflation expectations of firms and households, who are the actual drivers of economic activity. I take these expectations to have already reached around 2%," Naoki Tamura, a BOJ board member known for his advocacy of further rate hikes, said this week. "If upward inflation risks heighten, the BOJ may need to act decisively as a guardian of price stability."
Reuters
27-06-2025
- Business
- Reuters
In dovish tilt, BOJ zooms in on obscure underlying inflation trends
TOKYO, June 27 (Reuters) - The Bank of Japan's increasing caution around raising interest rates further relies heavily on a relatively obscure inflation reading, which policy doves argue suggests weak consumer demand but critics say messes with the bank's messaging. Underlying inflation in Japan, which focuses on the strength of domestic demand and wages rather than volatile food and fuel, has been tracking below the Bank of Japan's 2% target. That contrasts starkly with headline inflation numbers that are above the target at multi-year highs, riling the public and until recently providing strong arguments for further interest rates. Analysts say the BOJ's fresh concerns about local consumption and the global economy have muddled its efforts to manage inflation expectations in a country that spent decades mired in deflation. "The unprecedented nature of what the BOJ is doing, and a lack of track record anchoring inflation expectations, are reasons why the BOJ is using the fuzzy concept of underlying inflation," said former BOJ official Nobuyasu Atago, who is currently chief economist at Rakuten Securities Economic Research Institute. "That's complicating its communication and making it difficult to understand what exactly they are trying to do." From a policy perspective, BOJ Governor Kazuo Ueda has already acknowledged the challenges of both resetting inflation expectations and trying to precisely measure underlying inflation. "We have managed to de-anchor expectations from zero, but have yet to re-anchor them at 2%," he said in a speech last month. "This is why we are still maintaining an accommodative policy stance." On the face of it, Japan has an inflation problem, which is why its central bank is one of the few in the world that has raised rates in recent years as others cut. Headline consumer inflation hit 3.6% in April, well above 2.3% in the U.S. and the second highest among G7 advanced nations following 4.1% in the UK, according to OECD data. Other consumer price measurements, such as the core index stripping away volatile fresh food and the "core-core" - which also excludes fuel costs - have also stayed above the BOJ's 2% target for about three years. While there is no single indicator that gauges "underlying inflation", the BOJ looks at its own recalibrated measures such as the weighted median and the "mode", both of which are currently below the bank's 2% target. Other proxies the BOJ says it monitors include medium- and long-term inflation expectations, which it estimates as moving above 1.5% but slightly below 2.0%. A chart attached to recent BOJ speech texts also includes services price inflation as a key measurement of underlying inflation which, at 1.4% in May, also remains below 2%. Those trends coupled with worries about the economic hit from higher U.S. tariffs partly explain why the BOJ has signaled a pause in interest rate hikes after lifting them to 0.5% in January. However, there is still ambiguity around just what exactly vexes the BOJ. "For the average household, what matters is the price of food and grocery, not fuzzy concepts like underlying inflation," said a source familiar with the BOJ's thinking. "Even when looking at various indicators, underlying inflation is already pretty close to 2%," the source said, a view echoed by another source. To be sure, the BOJ expects the gap between headline and underlying inflation to narrow if the rise in food prices moderates and prospects of steady wage hikes underpin consumption. The central bank has also said it will keep raising rates if there is enough conviction that underlying inflation will hit 2% - a call the board makes looking not just at price moves but the economic outlook and its risks. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. A key challenge for now remains in how it communicates its cautious position, especially if domestic food inflation and the Middle East conflict persist and lead to an upgrade in its price forecasts at the board's next review on July 30-31. That question is also creating divisions within the BOJ board. Critics warn such dovish guidance could leave the bank behind the curve in addressing inflation risks. "I personally believe focus should be placed on inflation expectations of firms and households, who are the actual drivers of economic activity. I take these expectations to have already reached around 2%," Naoki Tamura, a BOJ board member known for his advocacy of further rate hikes, said this week. "If upward inflation risks heighten, the BOJ may need to act decisively as a guardian of price stability."
Yahoo
27-06-2025
- Business
- Yahoo
Analysis-In dovish tilt, BOJ zooms in on obscure underlying inflation trends
By Leika Kihara TOKYO (Reuters) -The Bank of Japan's increasing caution around raising interest rates further relies heavily on a relatively obscure inflation reading, which policy doves argue suggests weak consumer demand but critics say messes with the bank's messaging. Underlying inflation in Japan, which focuses on the strength of domestic demand and wages rather than volatile food and fuel, has been tracking below the Bank of Japan's 2% target. That contrasts starkly with headline inflation numbers that are above the target at multi-year highs, riling the public and until recently providing strong arguments for further interest rates. Analysts say the BOJ's fresh concerns about local consumption and the global economy have muddled its efforts to manage inflation expectations in a country that spent decades mired in deflation. "The unprecedented nature of what the BOJ is doing, and a lack of track record anchoring inflation expectations, are reasons why the BOJ is using the fuzzy concept of underlying inflation," said former BOJ official Nobuyasu Atago, who is currently chief economist at Rakuten Securities Economic Research Institute. "That's complicating its communication and making it difficult to understand what exactly they are trying to do." From a policy perspective, BOJ Governor Kazuo Ueda has already acknowledged the challenges of both resetting inflation expectations and trying to precisely measure underlying inflation. "We have managed to de-anchor expectations from zero, but have yet to re-anchor them at 2%," he said in a speech last month. "This is why we are still maintaining an accommodative policy stance." GUIDANCE MISMATCH On the face of it, Japan has an inflation problem, which is why its central bank is one of the few in the world that has raised rates in recent years as others cut. Headline consumer inflation hit 3.6% in April, well above 2.3% in the U.S. and the second highest among G7 advanced nations following 4.1% in the UK, according to OECD data. Other consumer price measurements, such as the core index stripping away volatile fresh food and the "core-core" - which also excludes fuel costs - have also stayed above the BOJ's 2% target for about three years. While there is no single indicator that gauges "underlying inflation", the BOJ looks at its own recalibrated measures such as the weighted median and the "mode", both of which are currently below the bank's 2% target. Other proxies the BOJ says it monitors include medium- and long-term inflation expectations, which it estimates as moving above 1.5% but slightly below 2.0%. A chart attached to recent BOJ speech texts also includes services price inflation as a key measurement of underlying inflation which, at 1.4% in May, also remains below 2%. Those trends coupled with worries about the economic hit from higher U.S. tariffs partly explain why the BOJ has signaled a pause in interest rate hikes after lifting them to 0.5% in January. However, there is still ambiguity around just what exactly vexes the BOJ. "For the average household, what matters is the price of food and grocery, not fuzzy concepts like underlying inflation," said a source familiar with the BOJ's thinking. "Even when looking at various indicators, underlying inflation is already pretty close to 2%," the source said, a view echoed by another source. To be sure, the BOJ expects the gap between headline and underlying inflation to narrow if the rise in food prices moderates and prospects of steady wage hikes underpin consumption. The central bank has also said it will keep raising rates if there is enough conviction that underlying inflation will hit 2% - a call the board makes looking not just at price moves but the economic outlook and its risks. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. A key challenge for now remains in how it communicates its cautious position, especially if domestic food inflation and the Middle East conflict persist and lead to an upgrade in its price forecasts at the board's next review on July 30-31. That question is also creating divisions within the BOJ board. Critics warn such dovish guidance could leave the bank behind the curve in addressing inflation risks. "I personally believe focus should be placed on inflation expectations of firms and households, who are the actual drivers of economic activity. I take these expectations to have already reached around 2%," Naoki Tamura, a BOJ board member known for his advocacy of further rate hikes, said this week. "If upward inflation risks heighten, the BOJ may need to act decisively as a guardian of price stability."
Yahoo
27-06-2025
- Business
- Yahoo
Analysis-In dovish tilt, BOJ zooms in on obscure underlying inflation trends
By Leika Kihara TOKYO (Reuters) -The Bank of Japan's increasing caution around raising interest rates further relies heavily on a relatively obscure inflation reading, which policy doves argue suggests weak consumer demand but critics say messes with the bank's messaging. Underlying inflation in Japan, which focuses on the strength of domestic demand and wages rather than volatile food and fuel, has been tracking below the Bank of Japan's 2% target. That contrasts starkly with headline inflation numbers that are above the target at multi-year highs, riling the public and until recently providing strong arguments for further interest rates. Analysts say the BOJ's fresh concerns about local consumption and the global economy have muddled its efforts to manage inflation expectations in a country that spent decades mired in deflation. "The unprecedented nature of what the BOJ is doing, and a lack of track record anchoring inflation expectations, are reasons why the BOJ is using the fuzzy concept of underlying inflation," said former BOJ official Nobuyasu Atago, who is currently chief economist at Rakuten Securities Economic Research Institute. "That's complicating its communication and making it difficult to understand what exactly they are trying to do." From a policy perspective, BOJ Governor Kazuo Ueda has already acknowledged the challenges of both resetting inflation expectations and trying to precisely measure underlying inflation. "We have managed to de-anchor expectations from zero, but have yet to re-anchor them at 2%," he said in a speech last month. "This is why we are still maintaining an accommodative policy stance." GUIDANCE MISMATCH On the face of it, Japan has an inflation problem, which is why its central bank is one of the few in the world that has raised rates in recent years as others cut. Headline consumer inflation hit 3.6% in April, well above 2.3% in the U.S. and the second highest among G7 advanced nations following 4.1% in the UK, according to OECD data. Other consumer price measurements, such as the core index stripping away volatile fresh food and the "core-core" - which also excludes fuel costs - have also stayed above the BOJ's 2% target for about three years. While there is no single indicator that gauges "underlying inflation", the BOJ looks at its own recalibrated measures such as the weighted median and the "mode", both of which are currently below the bank's 2% target. Other proxies the BOJ says it monitors include medium- and long-term inflation expectations, which it estimates as moving above 1.5% but slightly below 2.0%. A chart attached to recent BOJ speech texts also includes services price inflation as a key measurement of underlying inflation which, at 1.4% in May, also remains below 2%. Those trends coupled with worries about the economic hit from higher U.S. tariffs partly explain why the BOJ has signaled a pause in interest rate hikes after lifting them to 0.5% in January. However, there is still ambiguity around just what exactly vexes the BOJ. "For the average household, what matters is the price of food and grocery, not fuzzy concepts like underlying inflation," said a source familiar with the BOJ's thinking. "Even when looking at various indicators, underlying inflation is already pretty close to 2%," the source said, a view echoed by another source. To be sure, the BOJ expects the gap between headline and underlying inflation to narrow if the rise in food prices moderates and prospects of steady wage hikes underpin consumption. The central bank has also said it will keep raising rates if there is enough conviction that underlying inflation will hit 2% - a call the board makes looking not just at price moves but the economic outlook and its risks. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. A key challenge for now remains in how it communicates its cautious position, especially if domestic food inflation and the Middle East conflict persist and lead to an upgrade in its price forecasts at the board's next review on July 30-31. That question is also creating divisions within the BOJ board. Critics warn such dovish guidance could leave the bank behind the curve in addressing inflation risks. "I personally believe focus should be placed on inflation expectations of firms and households, who are the actual drivers of economic activity. I take these expectations to have already reached around 2%," Naoki Tamura, a BOJ board member known for his advocacy of further rate hikes, said this week. "If upward inflation risks heighten, the BOJ may need to act decisively as a guardian of price stability."
Qatar Tribune
26-05-2025
- Business
- Qatar Tribune
Global central banks talk harsh new economic realities in Tokyo
Agencies Tokyo It's Japan's version of the Fed's Jackson Hole symposium, without the trail hikes or views, and this year's gathering of global central bankers in Tokyo will focus on two uncomfortable realities: flagging economic growth and sticky inflation. The Bank of Japan and its affiliated think tank host a two-day annual conference that kicks off on Tuesday and includes prominent US, European and Asian academics and central bankers. While most of the speeches are academic in nature and closed to media, this year's theme looks at 'New challenges for monetary policy', specifically how central banks should deal with persistent inflation, downside economic risks, volatile markets and US conflicting headwinds, much of it a result of US President Donald Trump's policies, are creating speedbumps for many central banks, regardless of whether they are raising and cutting interest rates. The BOJ, for example, remains on track to continue raising interest rates and steadily taper its bond purchases, a stark contrast to its rate cutting peers, but recent global developments have raised questions about the pace of such moves. 'While the BOJ may be forced to stand pat for a while, it doesn't need to ditch rate hikes altogether,' said former BOJ official Nobuyasu Atago. 'It just needs to communicate in a way that when the environment looks right, it can resume rate hikes.' Officials from the Federal Reserve, including New York Fed President John Williams, European Central Bank, Bank of Canada and Reserve Bank of Australia are among participants of the conference, which takes place at the BOJ's headquarters in central Tokyo. At last year's meeting, participants took stock of their experience battling economic downturns by discussing lessons learned from using various unconventional monetary easing tools. They also discussed whether Japan - an outlier that kept interest rates ultra-low even as other major central banks hiked aggressively - could emerge from decades of deflation and low inflation with budding signs of sustained wage hikes. While concerns this year centre on tariff-induced economic downturns, the conference's session topics indicate policymakers still sensitive to risks of being caught with persistent, too-high inflation. One session features 'reserve demand, interest rate control, and quantitative tightening.' Another will debate a paper published by the International Monetary Fund (IMF) in December titled 'Monetary Policy and Inflation Scares.' That paper explains how large supply shocks, such as one caused by the COVID pandemic, can lead to persistent inflation, warning of the dangers central banks face assuming that they can look through cost-push price pressures. That could be a compelling message for major central banks that face a similar dilemma exacerbated by a global trade war and Trump's erratic trade policy. Initially thought to be on course for more rate cuts, the US Federal Reserve has been forced into a waiting game with officials warning last week of creeping inflation due to tariffs. While the European Central Bank is expected to cut rates again in June, the case is growing for a pause beyond that as inflation challenges creep up on the horizon, according to Reuters' conversations with policymakers. 'Tariffs may be disinflationary in the short run but pose upside risks over the medium term,' ECB board member Isabel Schnabel, an outspoken policy hawk, told a conference at Stanford University on May 9, in an explicit call for a pause. The BOJ, too, faces the challenge of balancing domestic inflationary pressure and growth risks from US tariffs. Trump tariffs forced the BOJ to sharply cut its growth forecasts on May 1, signaling a pause in its rate-hike cycle that still leaves short-term interest rates at a meagre 0.5 percent. And yet, Governor Kazuo Ueda has signaled readiness to resume rate hikes if underlying inflation stays on course to durably hit its 2 percent target. Japan's core consumer inflation hit a more than two-year high of 3.5 percent in April as food prices surged 7 percent in a sign of the pain rising living costs are inflicting on households. 'It's clear the BOJ has failed to achieve its mandate of price stability,' said Atago, who is currently chief economist at Rakuten Securities Economic Research Institute. 'Inflation will always be among worries for the BOJ, which is probably already behind the curve in dealing with domestic price pressures.' Ueda delivers a keynote speech at the outset of the conference on Tuesday, followed by a lecture by Agustin Carstens, general manager of the Bank for International Settlements.
