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The data underscores the challenge incoming Bank of Japan (BOJ) Governor Kazuo Ueda faces in assessing whether the recent cost-driven inflation will shift to one backed by solid demand and wage growth. The pace of increase slowed from a 3.3% gain in February and a nearly 42-year high of 4.3% hit in January, due largely to the effect of government subsidies to curb utility bills. In a glimmer of hope, factory output rose 4.5% in February from the previous month, government data showed on Friday, more than a median market forecast for a 2.7% gain. Manufacturers surveyed by the government expect to increase output by 2.3% in March and by 4.4% in April, the output data showed. Reporting by Takahiko Wada and Leika Kihara; Editing by Sam Holmes and Jacqueline WongOur Standards: The Thomson Reuters Trust Principles.

The finance ministry will set up a panel of experts as early as April to discuss the feasibility of issuing a digital yen, two sources with knowledge of the matter told Reuters. The step will come after the central bank's decision to start in April a pilot programme to test the use of a digital yen, moving Japan closer to issuing a CBDC in several years. The central bank has said the pilot programme may last for several years. Some laws may need to be revised if the government were to start issuing a CBDC for public use. Public broadcaster NHK reported on Thursday the finance ministry was considering setting up an advisory panel in April to discuss the possibility of a digital yen.

☆ Japan unveils fresh childcare plan but funding unclear
▼ + stars: | 2023-03-31 | by ( Tetsushi Kajimoto | ) www.reuters.com time to read: +3 min

Under the plan, the government will take steps such as expansion of child allowances to be given without income limits. While the government has earmarked 6.1 trillion yen ($45.90 billion) for steps to arrest the declining number of children, a senior ruling party lawmaker was quoted by media as demanding an additional 8 trillion yen to fund the new measures. "A boost to child allowances alone could cost 2-3 trillion yen. "Everyone acknowledges childcare support is important given Japan's need to boost the growth rate. "Opposition parties also have no objection to boost childcare spending," said political analyst Atsuo Ito.

☆ BOJ's new deputy chief flags chance of change to yield control policy
▼ + stars: | 2023-03-29 | by ( Leika Kihara | ) www.reuters.com time to read: +3 min

"If various conditions fall in place, some sort of change to yield curve control may become necessary. If conditions turn positive, (a tweak) will undoubtedly become a possibility," Uchida told parliament. Uchida said trend inflation was "extremely important" in judging whether Japan will sustainably meet the BOJ's 2% price target. Rather than focusing on a particular set of indicators, however, the central bank will look comprehensively at various data in setting monetary policy, he added. A career central banker, Uchida is one of two deputy governors.

☆ Japan's business services prices perk up near BOJ's inflation target
▼ + stars: | 2023-03-27 | by ( Leika Kihara | ) www.reuters.com time to read: +2 min

TOKYO, March 27 (Reuters) - Japan's business-to-business services inflation picked up in February on a tourism rebound and rising labour costs, data showed, offering the central bank hope that steady wage hikes would aid in sustainably hitting its 2% inflation target. The services producer price index, which measures the prices companies charge each other for services, rose 1.8% in February from a year earlier, up from a 1.6% gain in January, BOJ data showed on Monday. Fees for services such as office cleaning, taxi and software development also rose, reflecting higher labour costs. "For services, the pass-through of rising costs isn't as smooth as those for wholesale goods," said Masato Higashi, head of the BOJ's price statistics division, told a briefing. "But when you look closely, the pass-through (of higher labour costs) is gradually broadening," he said.

With inflation still exceeding the Bank of Japan's 2% target, the data will keep alive market expectations of a near-term tweak to its bond yield control policy, analysts say. The core consumer price index (CPI), which excludes volatile fresh food but includes oil products, rose 3.1% in February from a year earlier, government data showed, matching a median market forecast and slowing sharply from a 41-year high of 4.2% seen in January. "The new BOJ leadership will scrutinise Japan's price trend, as well as U.S. and European developments, in deciding its policy move," he said. But some BOJ policymakers have flagged the chance inflation could exceed initial expectations, as price hikes and wage gains show sign of broadening. Reporting by Takahiko Wada and Leika Kihara; Editing by Sam HolmesOur Standards: The Thomson Reuters Trust Principles.

SummarySummary Companies C.banks responded to risk-aversive moves in markets - MatsunoJapan's banking system stable as a whole - MatsunoFinmin says will keep assessing impact of Credit Suisse buyoutMarket rout may complicate BOJ's exit path from easy policyTOKYO, March 20 (Reuters) - Japan's top government spokesperson said on Monday the banking system was stable, seeking to reassure markets the country won't see a contagion from U.S. and European banking sector woes. "Each country promptly ramped up efforts as risk-aversive moves were seen in financial markets," Matsuno told a regular news conference. "Japan's financial system is stable as a whole," he said, adding that authorities were watching financial market moves "with a strong sense of alarm". For now, financial authorities in Tokyo see the most likely risk for Japan coming from a deterioration in the U.S. economy that would hurt exports, rather than a direct bank contagion. "The failure of two U.S. banks spilled over to a Swiss bank in a seemingly unrelated way," one official said.

"Each country promptly ramped up efforts as risk-aversive moves were seen in financial markets," Matsuno told a regular news conference. "Japan's financial system is stable as a whole," he said, adding that authorities were watching financial market moves "with a strong sense of alarm". The remarks came after Finance Minister Shunichi Suzuki told reporters on Monday the government would continue to "carefully assess" how a weekend rescue deal for Credit Suisse Group would affect Japan's financial sector. For now, financial authorities in Tokyo see the most likely risk for Japan coming from a deterioration in the U.S. economy that would hurt exports, rather than a direct bank contagion. "The failure of two U.S. banks spilled over to a Swiss bank in a seemingly unrelated way," one official said.

SummarySummary Companies C.banks responded to risk-aversive moves in markets - MatsunoJapan's banking system stable as a whole - MatsunoGovt watching market moves with strong sense of alarm - MatsunoFinmin says will keep assessing impact of Credit Suisse buyoutTOKYO, March 20 (Reuters) - Japan's banking system is stable and the country will not see a contagion from U.S. and European banking sector woes, Chief Cabinet Secretary Hirokazu Matsuno said on Monday. "Each country promptly ramped up efforts as risk-aversive moves were seen in financial markets," Japan's top government spokesperson told a regular news conference. "Japan's financial system is stable as a whole," he said, adding that authorities were watching financial market moves "with a strong sense of alarm". The remarks came after Finance Minister Shunichi Suzuki told reporters on Monday the government would continue to "carefully assess" how a weekend rescue deal for Credit Suisse Group would affect Japan's financial sector. Reporting by Leika Kihara and Tetsushi Kajimoto; Editing by Tom Hogue and Jacqueline WongOur Standards: The Thomson Reuters Trust Principles.

☆ BOJ debated side effects of easy policy at March meeting
▼ + stars: | 2023-03-20 | by ( Leika Kihara | ) www.reuters.com time to read: +3 min

At the March meeting, the BOJ maintained its ultra-loose policy, including a controversial 0.5% cap for the 10-year bond yield that had come under attack from markets betting on a near-term interest rate hike. But some members voiced concern over lingering distortions in the yield curve, which the BOJ sought to contain in December by raising the 10-year bond yield cap to 0.5% from 0.25%. At the time of the March meeting, the BOJ had been forced to ramp up bond buying to defend its 0.5% cap for the 10-year bond yield. The tussle with market participants betting on a near-term rate hike kept the 10-year yield pinned at the 0.5% ceiling, instead of fluctuating more freely as the BOJ had hoped. The 10-year bond yield was 0.250% on Monday, well off the BOJ's 0.5% cap, as investors loaded up on JGBs that are considered safe-haven assets favoured in times of market stress.

☆ Japan won't face incidents like SVB collapse - finance minister
▼ + stars: | 2023-03-15 | by ( Leika Kihara | ) www.reuters.com time to read: +1 min

FILE PHOTO: Japanese Finance Minister Shunichi Suzuki attends a news conference after a meeting of G7 leaders on the sidelines of G20 finance ministers' summit on the outskirts of Bengaluru, India, February 23, 2023. REUTERS/Samuel RajkumarTOKYO (Reuters) -Japan’s banking sector won’t face incidents similar to the collapse of U.S. lender Silicon Valley Bank due to differences in the structure of bank deposits, Finance Minister Shunichi Suzuki said on Wednesday. “Japan’s financial system is stable as a whole,” as banks have sufficient capital buffers against risks, Suzuki, who is also the minister overseeing the banking sector, told parliament. Losses in SVB’s bond portfolio have highlighted similar risks for Japanese lenders’ gigantic foreign bond holdings, which are carrying over $30 billion in unrealised losses. “For now, the chance of something similar to SVB’s collapse happening in Japan’s banking sector is low,” Suzuki said.

☆ BOJ debated feasibility of tweaking yield control in January, minutes show
▼ + stars: | 2023-03-15 | by ( Leika Kihara | ) www.reuters.com time to read: +3 min

At the January meeting, the BOJ maintained its ultra-low interest rates, including a bond yield cap it was struggling to defend, defying market expectations it would phase out its massive stimulus programme amid mounting inflationary pressure. "The BOJ must keep various options in mind in guiding monetary policy. But with overseas economies slowing now, it's inappropriate to rush towards an exit" from ultra-easy policy, another board member said, according to the minutes. Under yield curve control (YCC), the BOJ guides short-term rates at -0.1% and the 10-year bond yield around zero as part of efforts to sustainably hit its 2% inflation target. Instead of tweaking YCC, the BOJ modified its funds-supply market operation in January to use it as a new tool to prevent long-term rates from rising too much.

☆ BOJ board debated feasibility of tweaking YCC - Jan meeting minutes
▼ + stars: | 2023-03-15 | by ( Leika Kihara | ) www.reuters.com time to read: +1 min

TOKYO, March 15 (Reuters) - Bank of Japan (BOJ) policymakers debated the feasibility of making further tweaks to its bond yield curve control with one member saying it must keep "various options in mind" on the future course of monetary policy, minutes of its January meeting showed on Wednesday. The nine-member board concluded that it was premature to exit ultra-loose monetary policy now with inflation yet to sustainably achieve the BOJ's 2% target, according to the minutes of the Jan. 17-18 meeting. "The BOJ must keep various options in mind in guiding monetary policy. But with overseas economies slowing now, it's inappropriate to rush towards an exit" from ultra-easy policy, another board member said, according to the minutes. At the January meeting, the BOJ maintained ultra-low rates, including a bond yield cap it was struggling to defend, defying market expectations it would phase out its massive stimulus programme amid mounting inflationary pressure.

The precedent set at the "shunto" spring wage talks also influences wages at smaller firms that employ seven out of 10 Japanese workers. The shunto wages eventually peaked in 1974 with a record 33% rise in pay. Wary of increasing fixed costs, many Japanese firms have long opted to pay one-off bonuses in good times rather than raise base pay. Economists projected a 2.85% wage increase in a January poll, with base pay increases accounting for 1.08% and 1.78% from an increase in additional salary, based on seniority. Asked whether they would carry out base pay increase, 41.6% said they intended to.

☆ BOJ set to keep ultra-low rates at Kuroda's final policy meeting
▼ + stars: | 2023-03-09 | by ( Leika Kihara | ) www.reuters.com time to read: +3 min

"After conducting an examination of its policy framework, the BOJ will either abandon the 10-year yield target or shift to one targeting a shorter duration," she said. At the two-day meeting ending on Friday, the BOJ is set to maintain its short-term interest rate target at -0.1% and that for the 10-year bond yield around 0%. Some market players bet the BOJ could widen the band set around the 10-year yield target, allowing the yield to rise up to 0.75%, from the current 0.5%, as early as Friday. But many analysts polled by Reuters expect any tweak in YCC to happen after Ueda takes over as new governor. Ueda will chair his first policy meeting on April 27-28, when the board will produce closely watched, fresh quarterly growth and price forecasts extending through fiscal 2025.

With the approval, government nominee Kazuo Ueda will officially succeed incumbent BOJ Governor Haruhiko Kuroda whose second, five-year term ends on April 8. But the BOJ's current policy is a necessary, appropriate means to achieve 2% inflation," Ueda told parliament last month, signalling that he was in no rush to hike rates. "I'll succeed the policy in the context of seeking to hit the BOJ's 2% inflation stably and sustainably," Ueda replied. Hiroshi Shiratori, a professor at Japan's Hosei University, see the appointment of Ueda as a sign Kishida wants the BOJ to phase out the legacy policy of Abenomics. "Ueda is saying the BOJ will maintain low rates for now.

The precedent set at the "shunto" spring wage talks also influences wages at smaller firms that employ seven out of 10 Japanese workers and supply big manufacturers. The focus on job security, rather than higher pay, is blamed for keeping Japan's wage growth stagnant. WHAT WILL BE THE OUTCOME OF THE WAGE TALKS? Analysts expect big firms to offer wage hikes of around 3% in wage talks, which would be the fastest pace of increase since 1997 when Japan was on the cusp of deflation. Kishida has approached Japan's union umbrella Rengo in prodding firms to hike base pay.

It will also test Prime Minister Fumio Kishida's flagship "new capitalism" policy that aims to more widely distribute wealth among households by prodding firms to hike pay. World's largest car maker Toyota (7203.T) accepted a union demand for the biggest base salary growth in 20 years, while gaming giant Nintendo (7974.T) plans to lift base pay by 10%. The gain will comprise a 1.08% rise in base pay and a 1.78% increase in additional salary based on seniority, it said. Uncertainty over the sustainability of wage hikes could prod the BOJ to go slow in dialing back stimulus, some analysts say. The BOJ will probably wait until next year in doing anything radical, such as ending its bond yield control policy."

☆ Japan runs record current account deficit in January
▼ + stars: | 2023-03-08 | by ( Tetsushi Kajimoto | ) www.reuters.com time to read: 1 min

TOKYO, March 8 (Reuters) - Japan logged a record current account deficit in January on persistent rises in the cost of importing fuel, government data showed on Wednesday. The deficit, at 1.98 trillion yen ($14.43 billion), exceeded a median market forecast of 818.4 billion yen and marked the biggest amount on record, the government said. The country's trade deficit in January was also the largest since relevant data became available in 1996, the data showed. The data underscores the pain that stubbornly high energy costs are inflicting on Japan's economy, which is heavily reliant on imports of fuel and raw material. ($1 = 137.2200 yen)Reporting by Tetsushi Kajimoto; Writing by Leika Kihara; Editing by Edmund KlamannOur Standards: The Thomson Reuters Trust Principles.

The Tokyo core consumer price index (CPI), which excludes fresh food but includes fuel costs, exceeded the BOJ's 2% target for nine straight months. The slowdown was mostly due to the effect of government energy subsidies to curb soaring utility bills, the data showed. It marked the fastest year-on-year pace of increase since August 1991, when the index also rose 3.2%. Service inflation, which the BOJ sees as key to achieving sustained wage growth, perked up to 1.3% in February from 1.2% in January, the data showed. Nationwide core consumer prices rose 4.2% in January from a year earlier, hitting a fresh 41-year high, as an increasing number of companies passed on higher costs to households.

☆ Ex-BOJ gov Shirakawa urges re-examination of monetary framework, inflation targets
▼ + stars: | 2023-03-02 | by ( Leika Kihara | ) www.reuters.com time to read: +2 min

TOKYO, March 2 (Reuters) - Former Bank of Japan (BOJ) Governor Masaaki Shirakawa called on policymakers to reconsider central banks' monetary framework based on inflation targets, given their limits that became apparent from the recent spike in prices seen in many countries. By allowing inflation to overshoot their targets, central banks "forgot the difficulty of taking away the monetary punch bowl" and failed to tighten policy soon enough, he said. "Inflation targeting itself was an innovation that came about in response to the severe stagflation of the 1970s and early 1980s. "Now that we know its limitations, the time is ripe to reconsider the intellectual foundation on which we have relied for the past 30 years and renew our framework for monetary policy," he added. Shirakawa, who was BOJ governor before incumbent Haruhiko Kuroda, also criticised the central bank's current forward guidance committing to keep interest rates ultra-low.

"This is an encouraging set of data, but still is only one month, and challenges remain." Global oil prices went higher, underlining how a strong Chinese recovery could fuel global inflation through increased energy demand. STUBBORN INFLATIONIn Europe, German data showed the fight against inflation still has some way to go. Factory activity continued to shrink in Taiwan and Malaysia in February, and expanded at a slower pace in the Philippines, surveys showed. Separate data showed South Korea's exports fell 7.5% in February from a year earlier, marking the fifth straight month of declines, partly due to a plunge in semiconductor exports.

☆ Asia's factory activity stalls, but China a bright spot
▼ + stars: | 2023-03-01 | by ( Leika Kihara | ) www.reuters.com time to read: +3 min

China's manufacturing activity expanded at the fastest pace in more than a decade in February, according to an official index, while a private sector survey also showed activity rising for the first time in seven months. India and Australia saw economic growth slow in the quarter to December, and South Korea's exports fell in February for a fifth straight month, highlighting the pain slowing global demand was inflicting on the region's manufacturers. The region's weaker data underscores the challenge Asian policymakers face in reining in inflation with higher interest rates, without choking off their economic recoveries already facing pressure from the global economic slowdown, analysts say. Factory activity continued to shrink in Taiwan and Malaysia in February, and expanded at a slower pace than in January in the Philippines, surveys showed. Policymakers hope China's re-opening from COVID-19 curbs, and resilience seen so far in U.S. and European economies, will underpin global growth this year.

Rather, it must come up with ideas" to mitigate the costs and help sustain stimulus, Uchida told an upper house confirmation hearing. The remarks follow those of incoming BOJ Governor Kazuo Ueda on Monday suggesting his preference to spend "plenty of time" if the central bank were to conduct a review of its policy framework. While stressing that it was premature to discuss an exit strategy from ultra-loose monetary policy, Uchida said any exit would involve adjustments in the BOJ's interest rate targets and the level of its balance sheet. "In what order and at what timing the BOJ will make these adjustments will depend on economic and financial developments at the time," Uchida said. The BOJ can tap its experience conducting ultra-loose policy and dealing with market forces, to ensure it can steer a smooth exit regardless of economic conditions at the time, he said.

TOKYO, Feb 28 (Reuters) - Incoming Bank of Japan (BOJ) Deputy Governor Shinichi Uchida said on Tuesday the central bank shouldn't modify its ultra-easy monetary policy just to address the side-effects of prolonged stimulus. It shouldn't modify easy policy just because there are side-effects. Rather, it must come up with ideas" to mitigate the costs and help sustain stimulus, Uchida told an upper house confirmation hearing. The remark follows that of incoming BOJ Governor Kazuo Ueda on Monday suggesting his preference to spend "plenty of time" if the central bank were to conduct a review of its policy framework. Markets are rife with speculation the BOJ will overhaul its bond yield control policy once Ueda succeeds incumbent Governor Haruhiko Kuroda, whose term ends in April.

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