BOJ’s Sato sought to highlight downside risks

27 May 2014   Category: News, Asia, Global, Japan   By Derek Au

Bank of Japan (BOJ) board member Takehiro Sato proposed changing the central bank’s current expression of prices to reflect a more conservative outlook, highlighting scepticism within the board that the country will be able to see off deflation in a year’s time.

The minutes of the April 30 policy meeting reveal that Mr. Sato suggested changing the current expression of prices to say that risks are tilted slightly more to the downside, rather than “largely balanced”. With regard to the 2% inflation target, Mr. Sato proposed changing the expression to “head toward” from “achieve”, which is currently used, leaving some flexibility in terms of BOJ’s commitment to its 2% inflation target by the end of the next fiscal year. His proposal was turned down by an eight-to-one vote.

Patrick Ho, economist and strategist, global markets, at Bank of Communications in Hong Kong, told Asia Asset Management that Japanese inflation was now being driven by higher import energy pricing due to the weakening of the yen. However, he claimed that the stimulatory effect of a weaker yen was abating. “[That] BOJ board members sought a change of expression of prices implies Japan hasn’t achieved the inflation target and they want the government to put in place more stimulus measures to spur inflation and economic growth,” Mr. Ho said.

Mr. Sato has expressed his doubts about this target before. In July last year, he said the BOJ’s monetary policy framework was flexible, in the sense that it was focused on maintaining the 2% rate in a stable manner, rather than simply reaching it.

He also indicated that achieving an inflation target of exactly 2% within a time horizon of about two years was not necessarily too long. Other similarly sceptical board members have included Sayuri Shirai and Takahide Kiuichi.