by Leika Kihara

Tokyo (Reuters) – The annual conference organized by the Bank of Japan (BOJ) and its IMES reflection group, a sort of Japanese version of the Jackson Hole symposium of the American Federal Reserve (Fed), will bring together this week in Tokyo central bankers from all over the world to discuss two uncomfortable realities: economic growth in loss and stagnant inflation.

Eminent academics and central bankers of the United States, Europe and Asia will participate in the event, which will open on Tuesday, although most of the speeches are academic and closed to the media.

This year’s conference is the theme “new challenges in monetary policy” and focuses on how central banks must manage persistent inflation, lower risks on the economy, market volatility and the impact of American customs duties.

These opposite winds, which are largely resulting from the policies of the American president Donald Trump, create uncertainties for many central banks, which they increase or reduce interest rates.

BOJ, for example, remains on the right track to continue to increase its interest rates and gradually reduce its bond purchases, which contrasts sharply with its counterparts that reduce loan costs, but recent world developments have raised questions on the rhythm of these measures.

“Although the Boj can be forced to stay motionless for a while, it does not need to completely abandon the rate increases,” said Nobuyasu Atago, former head of the Japanese central bank. “It must simply communicate so that when the environment seems favorable, it can resume rate increases,” he added.

Dilemmas

While the concerns relate this year to the economic slowdown induced by the American trade war, the themes of the conference sessions indicate that the monetary policy officials remain sensitive to the risk of persistent inflation, a very present subject on the agenda of the 2024 meeting.

One of the sessions will focus in particular on a document published by the International Monetary Fund (IMF) in December which explains how important tenders, such as those caused by the COVVI-19 pandemic, can lead to persistent inflation, and warns the dangers facing the central banks by assuming that they can ignore the pressure on prices.

This could be a convincing message for the main central banks, faced with a similar dilemma, now exacerbated by the erratic commercial policy of the White House tenant.

While operators thought that the Fed would soon resume its rate discounts, the officials of the US central bank warned last week against the risks of seeing customs duties relaunch inflation.

The European Central Bank (ECB) is expected to reduce its rates again in June, but the arguments in favor of a break beyond this date are multiplying while the challenges on prices are looming on the horizon, according to Reuters conversations with monetary policy officials.

Isabel Schnabel, member of the Directory of Frankfurt and perceived as a supporter of a restrictive policy, launched an explicit appeal earlier this month in favor of a break.

BoJ is also faced with the challenge of finding a balance between inflationary pressures and the risks on growth linked to American surcharge.

The surcharge provided by Donald Trump have already forced the Japanese central bank to greatly reduce its growth forecasts and to announce a break in its rate of rates.

The consumer price index reached 3.5% in April in Japan, its highest level for more than two years, the prices of foodstuffs jumped by 7%, which testifies to the impact of the increase in the cost of living on households.

(Leika Kihara; Diana Mandia; edited by Augustin Turpin)

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