BoJ Survey: Japan on cusp of seeing big changes in corporate activity


The findings of a survey, conducted by the Bank of Japan (BoJ) to assess its past monetary easing measures, showed that Japan is on the cusp of seeing big changes in corporate activity.

Additional takeaways

Many firms said they can no longer hire enough workers if they curb wages.

More firms starting to pass on rising labour costs to sales prices.

Many firms regardless of size, sector, said an economy where wages and prices both rise is favourable for their business than that where wages, prices barely move.

BoJ’s monetary easing has underpinnned capex, corporate business activity by keeping borrowing costs low, improving availability of funds.

Some firms said they saw difficulty of hiring people, intensifying price competition as among side-effects of BoJ’s monetary easing.

Many big manufacturers cited FX moves as among effects that BoJ’s monetary easing had on their businesses.

Big manufacturers saw FX stability as biggest factor they wanted out of BoJ’s monetary policy.

Whether such changes in corporate activity broaden, become sustained would be crucial to Japan's economic, price outlook.

Market reaction

USD/JPY is unfazed by the above findings, trading modestly flat at around 155.75, as of writing.

Bank of Japan FAQs

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.

The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.

 

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