Central bank policymaker Hajime Takata has highlighted early indications of a transformation in Japan’s prevailing belief that wages and inflation will remain stagnant. These developments may lay the groundwork for a potential adjustment in the Bank of Japan’s (BOJ) extensive stimulus measures.
Takata emphasized the necessity of maintaining an ultra-loose monetary policy in light of the current economic conditions. Mounting uncertainties surrounding Japan’s ability to consistently attain the BOJ’s 2% inflation target, particularly amidst slowing global growth, warrant such a stance.
However, Takata also pointed to noticeable shifts in corporate pricing and wage-setting behaviors, which are driving not only the prices of goods but also services higher. This phenomenon signifies a broader inflationary force taking hold in the world’s third-largest economy.
While the recent surge in inflation is primarily attributed to increased import costs, this uptick in prices has prompted numerous companies to raise employee wages to counteract rising living expenses. Takata asserted that such wage hikes may persist into the following year.
“On a personal note, I am of the belief that Japan’s economy is now showing early signs of progress toward the BOJ’s 2% inflation target,” Takata declared during a speech. He urged the importance of maintaining the current substantial monetary stimulus while remaining adaptable to uncertainties, given the emerging positive correlation between wages and inflation.
These comments come on the heels of differing opinions from two other BOJ board members regarding the timing of scaling back the central bank’s aggressive stimulus measures.
With inflation surpassing the BOJ’s 2% target for over a year, speculation is rife in the markets that the central bank may soon unwind the radical stimulus program initiated by former Governor Haruhiko Kuroda.
Japan’s core inflation reached 3.1% in July, extending its streak of exceeding the BOJ’s target for 16 consecutive months. Moreover, companies have pledged wage increases not seen in three decades, further strengthening the argument for a departure from the decades-long era of ultra-loose monetary policy.
BOJ officials have consistently asserted that interest rates must remain exceptionally low until robust domestic demand and sustained wage growth take the reins from the surging import costs as the primary drivers of inflation.
