Kuroda says BOJ will maintain easing and monitor impact of global tightening
The Bank of Japan will maintain a policy of ultra-low interest rates amid heightened uncertainty about the global economy caused by policy tightening in other economies while closely monitoring the impact of interest rate hikes on financial markets abroad, the governor said Haruhiko Kuroda on Monday.
Speaking to business leaders in the central Japanese city of Nagoya, Kuroda maintained the view that a recent surge in inflation, largely due to higher commodity prices and a weaker yen, will not last even as the nation widens from corporate price increases.
The central bank has said its 2 percent inflation target should be stable and sustainable, supported by robust wage growth. Although headline inflation in Japan has surpassed this threshold in recent months, Kuroda has ruled out the possibility of a short-term rate hike on expectations of inflationary pressures easing.
“Currently, the Bank of Japan believes that it should continue monetary easing, thereby providing strong support for economic activity,” Kuroda said in his speech.
“This is to create a favorable environment for companies to increase wages and achieve the price stability goal in a sustainable and stable manner, accompanied by wage increases,” he said.
As the BOJ’s monetary policy, blamed in part for accelerating the yen’s sharp decline of late, comes under closer scrutiny, Kuroda has stressed the need to maintain the existing policy framework to support wage growth, a key factor in that Achieving inflation supported by strong demand.
Monetary tightening in advanced economies such as the United States and the eurozone has raised concerns about a global economic slowdown. Kuroda said there was a need to “carefully monitor” the impact of such moves, including asset price adjustments and capital outflows from emerging markets.
Market participants were alert for signs of slower monetary tightening. In recent days, the yen has surged against the US dollar, reversing its sharp decline to a three-decade low as markets expect the US Federal Reserve to hike interest rates less aggressively.
“The government has intervened in the FX market on several occasions and the unusually one-sided and rapid depreciation of the yen appears to be pausing. I believe that in and of itself is a very good thing,” Kuroda said at a press conference after his speech.
“Commodity prices have already started trending lower and the strong dollar will not last forever. Under such circumstances, it is certain that the impact of higher import costs will lessen,” he added.
Much of the recent surge in CPI has come as companies passed on rising import costs, which were inflated by the weaker yen.
While the yen’s rapid fall has been a concern for resource-constrained Japan, the economy likely grew in the July-September quarter, albeit at a much slower pace than the previous three months.
The BOJ chief said the economy will be supported by the emergence of demand, which had been depressed by the COVID-19 pandemic, and a rebound in inbound tourism going forward.
Wage growth will be crucial for the economy to see stronger demand as the recent bout of inflation weighs on consumer sentiment.
Prime Minister Fumio Kishida is urging companies to offer wage increases that can keep pace with accelerating inflation when workers’ collective bargaining begins early next year.
“The price hikes seen so far are likely to be reflected to a significant extent in the results of the next annual spring wage negotiations between workers,” Kuroda said, noting that wage developments should be carefully scrutinized.
© KYODO
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