Central Bank of Japan Eagles signal plus: increased inflation risk, increased rate rhythm or higher than expected

ON 10 AUGUST, THE PACE OF NORMALIZATION OF CENTRAL BANK POLICY IN JAPAN WAS ACCELERATING SIGNIFICANTLY. A SUMMARY OF THE VIEWS OF THE MONETARY POLICY MEETING OF 30-31 JULY, PUBLISHED THIS MONDAY, SHOWS THAT CONCERNS WITHIN THE BANK OF JAPAN ABOUT RISING INFLATION ARE GROWING, AND SOME OF THE REVIEWERS HAVE EVEN PROPOSED THAT THE FUTURE RATE HIKE BE MORE RADICAL THAN THE MARKET EXPECTED. AT THIS MEETING, THE DECISION-MAKING LOGIC OF THE CENTRAL BANK OF JAPAN HAS UNDERGONE A DELICATE BUT PROFOUND SHIFT. ONE MEMBER OF THE COMMITTEE MADE IT CLEAR THAT AS THE CORE CPI CONTINUED TO MOVE CLOSER TO THE TARGET OF 2 PER CENT, THE POLICY FOCUS HAD SHIFTED FROM “HOW TO ACHIEVE THE INFLATION TARGET” TO “HOW TO PREVENT EXCESSIVE INFLATION DEVIATIONS UPWARDS”. THE MEMBER STRESSED THAT THE “WAITING RISKS” COULD NOT BE CONSIDERED TO BE MINIMAL AT THE MOMENT AND THAT IT WAS THEREFORE NECESSARY FOR CENTRAL BANKS TO ACCELERATE THE ADJUSTMENT OF MONETARY POLICY. THIS SENSE OF URGENCY STEMS FROM THE ROBUSTNESS OF THE DOWNWARD TREND OF INFLATION, AND EVEN FROM THE VIEW THAT, IN ORDER TO ESTABLISH THE BASIS FOR POLICY NORMALIZATION, THE PACE OF THE INCREASE SHOULD GO BEYOND THE EXISTING EXPECTATIONS OF THE MARKET. IN EXPLORING THE PATH OF THE INCREASE, THE COMMISSION MEMBERS HAD SHOWN A MORE FLEXIBLE AND TOUGHER STANCE. THE SUMMARY OF THE MEETING SHOWED THAT WITHIN THE BANK THERE WAS A CALL FOR A “FLEXIBLE APPROACH” TO RESPOND TO CHANGES IN THE EXTERNAL FINANCIAL ENVIRONMENT, RATHER THAN RIGIDLY FOLLOWING A CERTAIN ESTABLISHED RHYTHM. ONE MEMBER SUGGESTED THAT CENTRAL BANKS SHOULD DISCUSS LARGER INTEREST-RATE INCREASES TO DEMONSTRATE THEIR DETERMINATION TO PREVENT INFLATION FROM GOING OUT OF CONTROL. AT PRESENT, THE CENTRAL BANK OF JAPAN MAINTAINS POLICY INTEREST RATES AT 1 PER CENT. HOWEVER, INTERNAL ESTIMATES OF “NEUTRAL INTEREST RATES” (AT RATES THAT NEITHER STIMULATE NOR INHIBIT THE ECONOMY) RANGED FROM 1.1 TO 2.5 PER CENT. THIS MEANS THAT EVEN THOUGH CURRENT INTEREST RATES HAVE BEEN INCREASED, THEY REMAIN OUTSIDE THE LOWER LIMIT OF THE ZONE. IN ORDER TO ENSURE POLICY AGILITY, FURTHER CONVERGENCE TO THE LEVEL OF NEUTRALITY HAS BECOME INTERNAL CONSENSUS。