Bank of Japan more upbeat on regional Japan, wage prospects
THE Bank of Japan (BOJ) on Thursday (Jan 12) offered a more optimistic view on the country’s economic health, and pointed to a growing number of firms planning wage increases, underscoring its conviction that Japan is on track to achieve its 2 per cent inflation target.
A rebound in overseas visitors – driven by Japan’s reopening of borders and the weak yen – also boosted service consumption, the central bank said in a report analysing regional economies. It added that this was a welcome development for Japan’s fragile economic recovery.
In the quarterly report, the central bank raised its economic assessment for four of the country’s nine regions. It maintained its assessment for the remaining five.
“Many regions saw their economies pick up, or pick up moderately,” it said.
Some firms appeared to struggle with increasing pay as rising fuel and raw material costs squeezed profits, the report said.
“But there were many cases where companies were increasing winter bonus payments, or planning to hike wages” to cope with a tight labour market and compensate employees for the rising cost of living, it said.
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The report will be among the factors that the BOJ’s board will scrutinise in compiling fresh quarterly growth and inflation forecasts at a policy meeting on Jan 17-18.
Sources said that the central bank will most likely raise its inflation forecasts next week, in a sign of its growing conviction that conditions could gradually fall into place to dial back its massive stimulus.
Japan’s core consumer prices rose 3.7 per cent in November from a year earlier, marking a 40-year high and exceeding the BOJ’s 2 per cent target for eight straight months, as companies continued to pass on rising raw material costs to households.
BOJ governor Haruhiko Kuroda has said that wage growth must accompany rising prices for inflation to sustainably hit its 2 per cent target, and allow the central bank to phase out stimulus.
The report quoted a supermarket in Yokohama, a city south of Tokyo, as having said: “We raised the base salary last autumn and may further raise wages this year in light of recent price rises and improvements in our earnings.”
A steady stream of tourists visiting from Europe, the United States and South-east Asian countries is boosting service consumption in the Kansai region in western Japan, said Hirohide Koguchi, the BOJ’s Osaka branch manager.
“Duty-free sales have returned to 70 per cent of the level seen before the coronavirus pandemic. If this trend continues, it will underpin not just the Kansai region but the entire Japanese economy,” he told a news conference.
Japan’s economy shrank an annualised 0.8 per cent in the third quarter of last year, as slowing global growth hurt exports, and soaring raw material costs weighed on domestic consumption.
Analysts expect a delayed rebound in consumption from the Covid-19 pandemic to underpin Japan’s recovery ahead, though the rising cost of living and China’s slowdown have clouded the outlook. REUTERS
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