Japan prime minister ‘strongly hopes’ BOJ achieves wage-driven inflation
The government plans to compile a package of measures to cushion the blow from rising living costs and lift investment in growth areas
[TOKYO] Japanese Prime Minister Sanae Takaichi said she “strongly hopes” the central bank achieves inflation driven by wages, rather than primarily through rising food costs.
This signals her administration’s preference for interest rates to stay low.
On Wednesday (Nov 12), Takaichi said in parliament that Japan still faced the risk of returning to deflation.
That would prompt households to hold off spending, hurt corporate profits and discourage firms from raising wages.
She also voiced displeasure over recent inflation because it was driven mostly by rising food costs and potentially hurting the economy.
“I’d like to see Japan experience moderate inflation, accompanied by wage increases. The type of inflation we’re seeing now is not good,” Takaichi said.
She added that the government plans to compile a package of measures.
These would cushion the blow from rising living costs and lift investment in growth areas, which in turn will boost corporate profits and brighten consumer sentiment.
“We will create a strong economy. This is a matter that affects monetary policy in a big way, so we hope to coordinate closely with the Bank of Japan (BOJ),” the Japanese prime minister said.
“I strongly hope the BOJ conducts policy appropriately, so it sustainably and stably achieves its 2 per cent inflation target, not through cost-push factors, but by wage gains,” she said.
The remarks by Takaichi, known as an advocate of expansionary fiscal and monetary policy, reinforce the challenge facing the BOJ.
Even before Wednesday’s comments, her administration’s preference for low rates and fiscal largesse, had raised complications for the BOJ’s decision on how soon to resume interest rate hikes.
While the BOJ had kept interest rates steady at 0.5 per cent last month, governor Kazuo Ueda has signalled the central bank’s readiness to hike rates as soon as December, if it is sufficiently convinced that companies will keep raising salaries next year.
A delay in the next rate hike, which most market players expect to happen in December or January next year, could trigger renewed yen declines that push up import costs and broader inflation, analysts say.
In the same parliament session, Finance Minister Satsuki Katayama acknowledged that the negative aspects of the weak yen have become more pronounced than the positive factors. She added that the currency’s weakness was among factors pushing up raw material costs.
“Recently, we have been seeing one-sided and rapid movements in the foreign exchange market,” Katayama said, warning that authorities were monitoring developments with a “strong sense of vigilance”.
Her remarks briefly pushed down the dollar to around 154.55 yen from 154.75.
While a weak yen gives exports a boost, it has become a political headache for policymakers as it pushes up the cost of importing fuel, food and raw materials.
Core consumer inflation hit 2.9 per cent in September, staying above the BOJ’s 2 per cent target on stubbornly high food prices, and keeping pressure on the bank to push up still-low borrowing costs.
However, pessimists in the BOJ, fret about the fragile state of Japan’s economy.
A Reuters poll showed that analysts expect Japan’s economy to have shrunk an annualised 2.5 per cent in the third quarter, due partly to the hit from higher US tariffs. REUTERS
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