The Wall Street Journal’s Daily Report on Global Central Banks for Monday, April 6, 2015:
Sign up for the newsletter: http://on.wsj.com/grandcentralsignup
For months, Bank of Japan officials have downplayed the significance of the sharp drop in the consumer price index. They’ve insisted it’s the temporary result of the plunge in oil prices, and that their scenario remains intact for a sharp CPI rebound later this year. Indeed, they’ve said cheaper oil would even help them hit their 2% inflation target by next spring, by putting more money in company and consumer coffers, and spurring more spending and growth.
Yet there’s been disturbingly little evidence so far that the oil windfall is sparking fresh economic activity. In fact, the weak inflation data — falling to 0% in February and possibly returning to deflation territory this spring — may result as much from weaker-than-expected growth, and the re-opening of the deflationary output gap, as from oil.
In the run-up to this week’s monetary policy committee meeting, a string of below-forecast indicators has prompted private economists to yet again cut their projections for Japan’s economic growth. One respected think tank has raised the possibility output may have fallen again in the first quarter, following one period of tepid growth at the end of 2014, and two negative quarters mid-year. The BOJ’s own quarterly tankan survey of business sentiment, released April 1, also came in a touch below forecasts, suggesting the sluggishness may be continuing into the spring.
The persistent pessimism hanging over the Japanese economy is perplexing, given all the factors that should be giving it a lift about now. In addition to oil, the BOJ’s added stimulus started in late October should be working its way through the system. Companies are reporting record profits, unemployment hovers near a two-decade low, and the Nikkei Stock Average nears a 15-year high. Meanwhile, the dampening effects of the April 2014 sales tax hike — which helped push the economy into recession last year — should be wearing off.
Despite the surprising lack of momentum, few BOJ watchers expect any policy change when the two-day meeting ends Wednesday. In public statements, officials continue to sound upbeat, emphasizing signs of recovery, insisting the oil benefits will soon kick in with a lag.
In addition, policymakers may want to try and figure out better just why two years of extreme monetary easing — launched April 4, 2013 — seem to have done so little so far to spur growth or inflation, and whether simply doing more of the same will do much good.
-By Jacob M. Schlesinger
MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD
For Fed, Will Job Weakness Continue or Prove an Aberration? Federal Reserve officials will likely want to see a few more months of data before deciding whether the March slowdown in hiring reflects a serious weakening in the labor market that would justify holding off on raising interest rates. If hiring rebounds in coming months, that would bolster the case of those officials who want to start lifting borrowing costs sooner rather than later — perhaps as soon as June — while a lasting slowdown would provide reason to hold off.
U.S. Jobs Report Roundup:
-A sharp deceleration in hiring ended a yearlong stretch of heady job creation, stirring concern about broader economic growth amid mounting evidence of a slowdown.
-Workers’ wages picked up in March, but signs of the long-awaited acceleration in American paychecks remain elusive.
-Lower oil prices are taking a toll on employment in the oil and gas sector.
-The key numbers from Friday’s report.
-The March jobs report in 11 charts.
–Economists react: “Bottom Line: Ouch!”
-Don’t angst too much over one weak jobs report.
How Long Until Full Employment? At the Fed’s March policy meeting, officials lowered their estimate of the likely range of unemployment in the long term to 5.2%-5%, meaning they think joblessness would have to fall below that range to generate inflation pressure. So how long will it take to get that low? The Atlanta Fed estimates that, all else equal, it would take a year of around 150,000-a-month job gains to get to 5.2% unemployment.—Dow Jones Newswires
Kocherlakota: Fed Has Role To Play In Aiding Native Americans. Minneapolis Fed President Narayana Kocherlakota said Friday persistent poverty in the Native American community will be drawing greater attention from the U.S. central bank. He said his bank will launch this year its Center for Indian Country Development, which will assist native communities to improve their economic circumstances.
Bankers to Fed: Show Us the Math. Trade groups representing the biggest U.S. banks are telling the Fed in a comment letter they want data to back up the central bank’s latest bid to make the financial system less risky. In December, the Fed proposed a new capital “surcharge” on the eight largest U.S. banks, scaled to the relative riskiness of each firm, as measured by the Fed’s formula. In a comment letter filed with the Fed on Thursday, three trade groups argued the Fed’s proposal “provides little or no underlying analysis, empirical or otherwise, for its chosen methodology and the effective increase” in the surcharge that would come with it.
Economists Give BOJ’s Kuroda Higher Grades Than Abe. Bank of Japan Gov. Haruhiko Kuroda has done a good job of trying to stoke inflation in Japan, but Prime Minister Shinzo Abe will have to try a little harder if he’s going to get the world’s third-largest economy humming again. That is the rough result of a Wall Street Journal survey of 33 economists in the U.S. and Japan marking two years since Mr. Kuroda introduced his aggressive monetary-easing policy with backing from Mr. Abe.
China Sets Sights on Joining the IMF’s Special Currency Club. Beijing is pressing its case that the yuan should be included in the IMF’s Special Drawing Rights, an exclusive collection of global currencies that form a special reserve asset. China’s leaders see inclusion in the SDR as something that would expand the yuan’s role as a currency for international trade and investment. “People are paying a lot of attention to the issue of whether the yuan can be included in the IMF’s Special Drawing Rights,” said Zhou Xiaochuan, governor of the People’s Bank of China, speaking to a recent gathering of politicians and business executives.”
RBI’s Rajan Expected to Keep Rates Steady. India’s central bank head, Raghuram Rajan, will likely leave lending rates unchanged Tuesday, according to economists polled by the Wall Street Journal. Nine out of 11 analysts surveyed said they expect him to keep the benchmark overnight lending rate at 7.5%. All the economists agreed the RBI will likely cut rates before the end of the year by at least another 0.25 percentage point.
Bank of Korea Likely to Stand Pat This Week. Most economists surveyed by the Wall Street Journal forecast South Korea’s central bank will keep its base rate unchanged at its April 9 policy meeting. Twenty two of 23 economists polled expect the BOK to hold steady while just one expects an interest rate cut. —Dow Jones Newswires
Why Are Wages Growing Slowly Despite McDonald’s, Wal-Mart Raises? Average hourly earnings advanced 2.1% from a year earlier, the Labor Department said Friday, just a slight pickup from February’s reading. Taking the longer view, wages have basically been growing at an annual 2% clip for the past four years. How is that possible with all the news of raises and minimum-wage increases in more than a dozen states this year? Pay raises announced by prominent companies don’t kick in till later this year. But even when they do, they won’t address the deeper challenge: The middle of the labor market is largely missing out.
-New York Fed’s Dudley speaks on the national and regional outlook in Newark, N.J. at 8:30 a.m. EDT
-New York Fed’s Dudley speaks in Hoboken, N.J. at 4 p.m. EDT
-Reserve Bank of Australia releases a policy statement
-Reserve Bank of India releases a policy statement
-Minneapolis Fed’s Kocherlakota speaks in Bismarck, N.D. at 8:50 a.m. EDT
-Bank of Japan releases a policy statement
-Fed’s Powell speaks in New York at 8 a.m. EDT
-New York Fed’s Dudley speaks in New York at 10 a.m. EDT
-Federal Reserve releases minutes from its March 17-18 policy meeting at 2 p.m. EDT
-Bank of Korea releases a policy statement
-Bank of England releases a policy statement at 1100 GMT
-Richmond Fed’s Lacker speaks in Sarasota, Fla. at 8 a.m. ET
-Minneapolis Fed’s Kocherlakota speaks in Bloomington, Minn. at 12:20 p.m. EDT
An Assignment Model of Knowledge Diffusion and Income Inequality. “Arbitrarily small differences in learning abilities generate large differences in ex post outcomes, because, with a limited supply of knowledgeable teachers, only fast learners are assigned to the teachers with the most productive knowledge,” Erzo G.J. Luttmer wrote in a Minneapolis Fed staff report.
Jobs Data: Winter of Discontent, Summer of Discomfort. “If there was any question that the Fed would pass up on raising rates at its June meeting, it has been resolved,” Justin Lahart writes in The Wall Street Journal. “Indeed, amid signs that global economic weakness has begun to weigh on the U.S. job market, even the September liftoff on rates that most economists have been forecasting is looking iffy.”
Is the Fed Gonna Tighten Like It’s 1994? Or 2004? Benn Steil and Dinah Walker address that question in a blog post for the Council on Foreign Relations. “How will the Fed raise rates once it starts? Gradually, in small steps? Faster, with larger steps? In 2012, before becoming Fed chair, Janet Yellen argued for a later first rate-hike than would be suggested by a traditional ‘Taylor Rule’ approach, followed by more aggressive catch-up rate hikes. Now, however, she is suggesting that those rate hikes will be gradual and measured after all. Almost certainly she is wary of a repeat of 1994, when the Fed began raising rates and bond markets took a pounding.”
-Turkey’s annual inflation rate rose to a three-month high in March amid soaring food prices and a weakening currency, diminishing hopes for central bank interest-rate cuts to stoke sagging economic growth.
SIGN UP: Grand Central, straight to your inbox.
FEEDBACK LOOP: Send us your tips, suggestions and feedback. Write to: Jon.Hilsenrath@wsj.com; Victoria.McGrane@wsj.com; Pedro.daCosta@wsj.com; Michael.Derby@wsj.com; Nell.Henderson@wsj.com; Brian.Blackstone@wsj.com; email@example.com; Ben.Leubsdorf@wsj.com; Paul.Hannon@wsj.com; Jacob.Schlesinger@wsj.com; Sarah.Portlock@wsj.com; Kate.Davidson@wsj.com
Follow us on Twitter: @WSJCentralBanks, @NHendersonWSJ, @pdacosta, @Blackstonebrian, @PaulHannon29, @michaelsderby, @vgmac, @wsj_douglasj, @BenLeubsdorf, @JMSchles, @MargitFeher, @ToddBuell, @sarahportlock, @KateDavidson
Get WSJ economic analysis delivered to your inbox: