Most BOJ policymakers are optimistic Japan's inflation will continue to rise in the months ahead. However, the ultra-loose policy is maintained because the economy is fragile.
On Wednesday (26/January), the Bank of Japan published the minutes of its January policy meeting which implied optimism about Japan's inflation outlook going forward. Most BoJ officials expect inflation to touch 1 percent in the coming months. In fact, one member said inflation could approach the 2 percent target.
However, the majority of BoJ policymakers stressed the need to maintain an ultra-loose monetary policy in an effort to support the fragile domestic economy, especially after the emergence of the Omicron variant that threatens the global economic recovery.
"There is a possibility that Japanese consumer inflation on an annual basis could reach 2 percent… If this scenario occurs, then the most important thing is to look at the facts behind the increase in inflation, whether it is temporary or sustainable," said one BOJ policymaker.
"Consumer inflation could temporarily reach 1.5 percent in the first half of 2022. Whether this upward momentum in inflation can occur sustainably so that inflation can stabilize near the 2 percent target, will largely depend on trends in labor wages and inflation, or overall demand strength. ," said another BoJ member.
It should be noted that Japanese consumer inflation has indeed increased in recent months due to rising fuel prices and raw material commodities in the international market. Japan is one of the developed countries that has been most affected by the increase in commodity prices. The reason is, many companies there are reluctant to adjust prices considering Japanese consumers are very sensitive to price increases.
That is why, optimism about the inflation outlook is not fully supported by all members of the BoJ policy makers. Others said they remained skeptical of Japan's inflation outlook. According to them, it will be difficult to achieve the BoJ's inflation target of around 2 percent by the end of 2023.
USD/JPY Await Fed Announcement
The minutes of the BoJ's January meeting show that ultra-loose monetary policy will remain in place. The BoJ's attitude was actually anticipated by market participants so that it would not have a high impact on the movement of the Yen against the US Dollar.
The USD/JPY pair is currently moving slightly around 113.82. The market's attention that is being focused on the announcement of the Fed makes them tend to wait and see in today's trading.
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