MNI POLICY: BOJ Board Likely To Maintain Price View

The Bank of Japan is likely to maintain its assessment that risks to prices are “balanced” at next week’s policy meeting, as the number of board members seeing upside risks is unlikely to increase enough to shift the overall view, MNI understands.

A change in the BOJ’s price risk assessment requires at least two more board members to see upside risks than those who see downside risks. Even if one additional member turns more hawkish, the margin would be insufficient to alter the official stance from “balanced” to “tilted to the upside.”

In the July Outlook Report, three of the nine board members saw upside risks to prices, while another three saw either downside or balanced risks. Policymakers will review these perceptions at the Oct 29-30 meeting. Historically, the BOJ has not altered its price assessment when only one additional member adopted a differing view and it is unlikely to do so this time unless more than two members shift toward seeing upside risks.

Core consumer price growth has slowed as the BOJ projected in July, but the pace of deceleration remains modest due to smaller-than-expected declines in rice and food prices. The persistence of these price pressures could prompt one of the three members who previously saw balanced risks to shift toward an upside view. Even so, if the number of members seeing upside risks increases to four from three in July, the three members maintaining a downside view would likely prevent the overall assessment from moving away from “balanced.”

HOUSE VIEW

The three board members who saw downside risks in July are believed to include Governor Kazuo Ueda and the two deputy governors, who typically share the same assessment. Unless Ueda changes his view, the deputies are unlikely to adjust theirs.

Ueda continues to stress the need to monitor downside risks to the economy and their potential impact on prices, as well as to assess the implications of global trade developments before considering another rate hike.

BOJ officials prepare a draft of the price outlook, including the Bank’s policy intentions, for discussion among board members, but the final assessment is determined through consensus. Even if the overall view were revised to the upside, the BOJ would not publish any numerical breakdown of board members’ views, as the conclusion reflects their net assessment.