WASHINGTON – Surging prices are haunting consumers and confounding economic planners in the US and other countries, but not in Japan, where sparking inflation has proven an elusive goal, AP reported.
While the Federal Reserve and most other central banks are shifting into inflation-fighting mode, the Bank of Japan on Friday chose to reduce its corporate bond purchases but will continue pumping tens of billions of dollars into the economy in hopes of eventually attaining its elusive 2 per cent inflation target and getting the economy to grow faster.
With outbreaks of the omicron variant of coronavirus looming in many parts of the world, “high uncertainties” persist, it said.
The chances of hitting that target anytime soon remain “slim,” Marcel Thieliant of Capital Economics said in a report. “The upshot is that the Bank of Japan will remain among the few central banks that won’t tighten policy for the foreseeable future.”
Inflation was 0.1 per cent in October. Excluding volatile food and energy prices, it was negative. The BOJ is forecasting 0% inflation for the fiscal year that ends in March.
By contrast, US consumer prices grew 6.2 per cent in October over the previous 12 months, the most in three decades.
During the pandemic, the Federal Reserve and other central banks unleashed a barrage of monetary stimulus similar to Japan´s, taking interest rates to record lows in some cases. Now that the US and other economies are on the mend and prices are surging, the Federal Reserve and other central banks are moving to wind that down without snuffing out economic recoveries.
With US inflation nearing a 40-year high, Fed policymakers Wednesday announced plans to shrink the central bank’s monthly bond purchases twice as fast as earlier planned. That puts it on a path to begin raising interest rates within the first half of 2022.
On Thursday, the Bank of England became the first central bank among leading economies to raise interest rates to fight inflation that rose to 5.1 per cent in the year to November.
Some Asian central banks already had begun to raise interest rates. New Zealand´s has raised its benchmark interest rate in October and then in November, from a record low 0.25 per cent now to 0.75 per cent.
Japan´s economy began slowing in the early 1990s with the collapse of a financial bubble and has never really regained momentum. Companies are wary of hiring, raising salaries or investing, given the bleak growth outlook for a country whose quickly aging population is shrinking. Combatting deflation, or falling prices, has been the priority.
For nearly a decade, the Bank of Japan has been buying massive amounts of government bonds and other assets to keep borrowing costs in the world’s third-largest economy near zero and, theoretically, entice consumers and companies to spend more to beat future price increases. The benchmark interest rate has been at minus 0.1 per cent for years.
Rents are still roughly where they were 30 years ago and prices for most consumer goods have risen, but not by as much as elsewhere. With wages flat or falling and taxes rising, cautious shoppers tended to just tighten their belts.
“Japan´s inflation remains muted,” says Sayuri Shirai, a professor at Tokyo´s Keio University and former member of the Bank of Japan´s policy board.
Japanese retailers, restaurants and other businesses have been loathe to pass higher costs onto their price-sensitive consumers.
Aeon, one of Japan´s biggest retail conglomerates recently announced a “price freeze” until the year´s end “as a way of supporting our customers at a time when prices for daily necessities are rising.”
