A government advisory panel has urged the Bank of Japan to monitor corporate funding conditions as it determines monetary policy, signaling an additional factor the central bank should consider prior to its next policy meeting.
Materials submitted on Monday by private sector members of the government's economic and fiscal policy council asked the BOJ to pursue appropriate monetary settings while keeping a close watch on funding conditions in financial markets and continuing to track price developments, according to the Cabinet Office.
The panel specifically noted that shortages of goods and rising prices could raise corporate funding needs, and it recommended that the central bank be mindful of those risks when evaluating policy options.
Those comments follow the BOJ's decision last month to leave its policy stance unchanged in a 6-3 vote - an outcome that was unusually split and has been interpreted as signaling growing support within the bank for the possibility of a rate increase. The central bank's next policy meeting is scheduled for June 16. Traders in the overnight interest rate swaps market are pricing in a 75% probability of a hike at that meeting.
In its quarterly outlook report, the BOJ raised its core inflation forecast for the current fiscal year to 2.8%, a figure that exceeded market expectations. At the same time, the central bank trimmed its economic growth projection to 0.5%, half of its previous estimate.
The advisory panel also urged government support for corporate financing, noting that the conflict in the Middle East has pushed up crude oil prices and affected business activity. In response to those pressures, since April the government has widened access to low interest loans for businesses that could be impacted by the regional conflict.
Context and implications
The advisory group's request frames corporate funding conditions as a material consideration for monetary policy decisions. It ties together price developments, supply constraints and elevated oil costs as factors that could increase firms' demand for financing. The panel also called on the government to bolster support for corporate lending where needed.
All the figures and developments reported here — the BOJ vote split, the June 16 meeting date, the 75% pricing in swaps markets, the BOJ's 2.8% core inflation forecast and 0.5% growth projection, and the government's expanded low interest loan access since April — are taken from the materials and the BOJ's outlook noted by the Cabinet Office.