Bank of Japan (BoJ) board member Hajime Takata emphasized on Wednesday the necessity of a gradual shift in the central bank’s policy, even after January’s rate hike, to prevent upward price risks from materializing. Despite the rate increase, Japan’s real interest rates remain deeply negative, signaling that the accommodative monetary stance is unchanged.
Takata noted that the BoJ must adjust its degree of monetary support further if the economy aligns with the BoJ’s forecasts. However, he cautioned that the central bank must be careful when shifting policy, given uncertainties regarding the U.S. economic outlook and the difficulty of determining the neutral interest rate level.
Setting a specific neutral rate could potentially be viewed by the market as forward guidance, which may limit the flexibility of the BoJ’s policy. Takata also observed that Japanese companies are maintaining a positive investment outlook, with consumption showing moderate growth, which is expected to continue.
Long-term inflation expectations are rising steadily, and Takata anticipates that businesses will offer substantial pay increases in upcoming wage negotiations. This, along with domestic inflationary pressures, is expected to drive inflation toward the BoJ’s target. However, he warned that inflation could surpass expectations if the yen weakens further or if wage hikes exceed projections.
Takata expressed optimism that Japan could achieve the BoJ’s price target sustainably from fiscal 2025 onward, driven by robust wage growth and domestic inflationary pressures. The risk of significant market fluctuations has diminished, providing the BoJ with greater policy flexibility moving forward.
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