BOJ must communicate clearly, avoid stimulus-exit talk: June meeting summary

[TOKYO] Bank of Japan policymakers focused on how best to communicate their intentions as improvements in the economy heighten market attention to the timing of an exit from ultra-easy monetary policy, a summary of opinions from the June rate review showed.

While board members stressed the need to discourage markets from speculating that a withdrawal of stimulus was near, they also showed little appetite for additional easing despite subdued inflation.

With inflation distant from the BOJ's 2 per cent target and likely to take time accelerating, the best approach would be to maintain the current ultra-loose policy, the board members were quoted as saying in the summary released on Monday.

"The price stability target cannot be achieved easily within a short time-frame. It is crucial to maintain accommodative financial conditions and keep the economy expanding as long as possible," one board member was quoted as saying.

"It's necessary to continue with the current easy policy persistently and wait for a steady increase in demand and further falls in the unemployment rate to lead to higher wages, prices and inflation expectations," another member said.

Such comments align with a dominant market view that the BOJ will maintain a neutral policy stance, neither raising nor lowering interest rates for the time being, hoping that improvements in the economy will gradually push up inflation.

The BOJ kept monetary policy steady at the June meeting, and upgraded its assessment of private consumption for the first time in six months, signalling its confidence in an export-driven economic recovery that is gaining momentum.

Growing signs of life in Japan's economy have presented the BOJ with a fresh communications challenge, pushing it to be clearer with markets on how it might dial back its stimulus - even though such a step remains a long way off.

One board member said improvements in the economy, as well as the BOJ's expanding balance sheet, were partly behind growing market attention to when and how the BOJ may withdraw stimulus.

"As the economy continues to improve, the BOJ needs to be accountable for its thinking on monetary policy to avoid raising concern among market participants," the board member was quoted as saying.

"The fundamental problem ... is that the timing of an exit cannot be foreseen as achievement of the price target is still considerably distant," another board member said.

After three years of heavy asset buying failed to drive up inflation, the BOJ revamped its policy framework last year to one better suited for a long-term battle to beat deflation.

Despite growing signs of strength in the economy, inflation remains subdued as companies remain wary of raising prices for fear of scaring away cost-conscious consumers. Data due on Friday will likely show core consumer inflation hit 0.4 per cent in May from a year earlier, a Reuters poll found.

REUTERS