The Bank of Japan (BOJ) rejects the idea that additional monetary stimulus is needed to prevent the decline in oil prices in recent months from pulling down inflation, according to people familiar with the discussions.
For now, policy-makers assess that while cheaper energy costs may weigh on consumer prices for a time, they ultimately will boost the economy—spurring inflation, the people said, asking not to be named as the talks are private. Less agreement is found on how much capacity the central bank has to expand its buying of government debt, some of the people said.
The slide in oil prices to a five-year low this month magnified the challenges to Governor Haruhiko Kuroda and his colleagues, as they try to secure a 2-percent pace for their main inflation gauge next year. Spring wage talks between business and labor leaders will be critical to gauging prospects for consumer prices, the people said.
“The BOJ is unlikely to add stimulus” in January, said Hiroaki Muto, an economist at Sumitomo Mitsui Asset Management Co. “They will argue that oil prices are going to have positive effects on the economy and that their revision to the inflation outlook is minor.”
Officials want to avoid creating a perception that the central bank will take action simply when oil prices fall, the people said. The October 31 easing demonstrated the BOJ’s commitment to achieving its price target, they said.
The BOJ lowered its forecasts for
inflation for the year through March
and the following 12 months on October 31. At that meeting, the policy board decided in a 5-4 vote to increase the pace
of asset purchases that gives the bank room to buy from the market every new bond issued by the finance ministry.
The world’s third-biggest economy contracted for a second straight quarter in the three months through September, according to data released after the BOJ’s decision, putting Japan in its fourth recession since 2008.
The bank wouldn’t automatically ease even if the outlook was lowered, board member Sayuri Shirai said last month. Shirai, who voted with the majority to ease further in October, said that the decline in oil prices would have positive economic effects and this would push up prices.
Board member Takehiro Sato, who voted against further easing in October before supporting a decision to maintain the policy at a subsequent meeting, said this month that lower oil prices would exert downward pressure on prices, although in the longer term they would have positive economic effects. The BOJ signaled following its October 31 meeting that it was ready to ease further if needed to support inflation expectations that have been affected by oil prices, said Hideo Kumano, an economist at Dai-ichi Life Research Institute and a former BOJ official.