BOJ governor Kuroda rules out rate hike until wages rise more

BANK of Japan (BOJ) governor Haruhiko Kuroda said on Friday (Nov 18) wages must rise by around 3 per cent for inflation to sustainably hit the bank’s 2 per cent target, stressing the need to avoid raising interest rates until the economy strengthens enough to further drive up pay.

Kuroda said core consumer inflation, which hit a 40-year high of 3.6 per cent in October, was rising “quite a bit” but will likely slow back below 2 per cent in the next fiscal year, as the impact of soaring fuel and raw materials costs dissipates.

With uncertainty over Japan’s economic outlook extremely high, the central bank must focus on supporting growth with an ultra-loose policy until wages rise more, he said in semi-annual testimony to parliament.

“Raising interest rates now could delay Japan’s economic recovery,” Kuroda said. “I’m not saying the BOJ cannot raise rates indefinitely. I’m saying that it’s inappropriate to raise rates now, in light of current economic and price developments.”

Japan’s nominal wages rose 2.1 per cent in September from a year earlier, marking the fastest pace since 2018 but below the recent rise in inflation above 3 per cent, a sign that households’ purchasing power was being crippled by broad price hikes.

“It’s difficult to sustainably achieve our 2 per cent inflation target unless nominal wages rise steadily,” Kuroda said.

“We’ll continue with our monetary easing to support the economy and achieve our 2 per cent inflation target in a sustained, stable fashion backed by wage growth,” he said.

Kuroda has repeatedly called for the BOJ to keep monetary policy ultra-loose, drawing criticism from some opposition lawmakers who blame Japan’s low rates for weakening the yen and pushing up the cost of imports.

Some lawmakers and academics have called for reviewing a joint statement the government and the BOJ signed in 2013, which holds the central bank responsible for achieving 2 per cent inflation with ultra-easy monetary policy.

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“I don’t see the need now to review the statement,” Kuroda said, brushing aside the possibility of watering down his pledge to maintain an ultra-loose policy until 2 per cent inflation is sustainably achieved. REUTERS