Some Bank of Japan policymakers believe overseas economies continue to pose downside risks to Japan’s economy and prices, minutes of its April policy meeting showed on Tuesday.
At the meeting, held on April 27-28, the BOJ held off on expanding monetary stimulus even as global headwinds, a strong yen and soft consumption threatened to derail Japan’s fragile economic recovery.
The BOJ cut its inflation forecasts in a quarterly review of its projections, and once again pushed back by six months the timing for hitting its 2 percent price target, saying it may not happen until March 2018 at the latest.
Members said the central bank should carefully examine risks from overseas economies in the future and ease monetary policy without hesitation if needed.
One member said the BOJ’s decision to keep policy on hold at the April meeting should not be seen as the central bank changing its thinking on monetary policy, suggesting the member wished to avoid giving an impression the BOJ had become reluctant to ease.
But overall, BOJ members were sanguine despite lowering their consumer price forecasts, saying they could keep policy on hold because it would take time to see the benefits.
The BOJ could soon be facing extra challenges from slowing emerging markets, volatility caused by U.S. monetary policy, and Britain’s vote on European Union membership – especially if the “leave” side prevails.
“In the past the BOJ has suddenly changed its message. One month they sound optimistic, but the next month they ease policy,” said Norio Miyagawa, senior economist at Mizuho Securities.
“The BOJ is trying to preserve its limited options, but they will have to ease further if risk aversion in financial markets causes the yen to rise and damages inflation expectations.”
In the minutes, members said the downgrade to their consumer price forecast was mainly because of downward revisions of gross domestic product and slower gains in wages.
However, most members remained confident that households and the corporate sector would continue to spend more, leading simultaneously to wage growth and higher consumer prices.
Most members agreed the BOJ could afford to take a wait-and-see stance because it would take time for its negative interest rates and debt purchasing programme to have an impact.
The BOJ also kept policy unchanged at a subsequent meeting last week, but it will face a more critical gathering in late July when it again reviews its growth and inflation projections.