Japan, December 26 (Reuters) – Haruhiko Kuroda, governor of the Bank of Japan (BOJ), dismissed the possibility of a short-term shift away from the ultra-loose monetary policy on Monday but expressed optimism that growing labor shortages will encourage businesses to raise salaries.
The BOJ’s decision to broaden the tolerance band around its yield target last week, according to Kuroda, was made to maximize the impact of its ultra-easy policy rather than as the first move toward winding down its massive stimulus program.
“Not a step in the direction of an exit. The Bank will continue its monetary easing under yield curve management to reach the price target sustainably and stably, together with wage rises. “Kuroda made this statement at a speech he gave to the business lobby group Keidanren.
He added that once the effects of skyrocketing import costs fade, Japan’s average consumer inflation will likely fall below the BOJ’s 2% objective in the upcoming fiscal year.
Kuroda predicted that wage growth would likely pick up the pace gradually due to growing labor shortages and structural shifts in Japan’s labor market that result in higher wages for temporary workers and an increase in permanent employees.
The Japanese labor market is expected to become much tighter, and Kuroda predicted that employers’ practices for determining prices and wages would alter. “In this sense, Japan is approaching a critical juncture in emerging from a protracted period of low inflation and poor growth,” he added.
The rate of wage growth is thought to be a significant factor in determining how quickly the BOJ could boost its yield curve control (YCC) targets, which are now set at -0.1% for short-term interest rates and roughly 0% for the yield on 10-year bonds.
Last week, the BOJ surprised the markets by enlarging the range surrounding its target rate on the 10-year note. Kuroda had said the action, which permits long-term rates to climb more, was intended to ease some of the costs of the protracted stimulus rather than serve as a precursor to full-fledged policy normalization.
But with inflation rising above its 2% target, market rumors abound that the BOJ may increase the yield targets when dovish governor Kuroda’s term ends in April next year. Even while more businesses are raising prices to pass on rising costs to consumers, the BOJ needs to assess whether these shifts in corporate price-setting behavior will become the new standard in Japan, according to Kuroda.
He said that the results of the spring salary discussions between major corporations and unions would also be crucial to the forecast for wage increases. During his remarks at the same gathering, Prime Minister Fumio Kishida pleaded with business executives to support efforts to raise wages to allow families to offset the growing cost of living.
As businesses continued to pass on rising expenses to consumers, a hint that price increases were spreading, Japan’s core consumer inflation increased to 3.7%, a level not seen in the country for four decades.
For permanent employees, however, wages have hardly increased as employers have been wary of raising fixed costs in the face of an uncertain economic future.
- Published By Team Hongkong Journalist