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6 Jun 2024
BoJ's Nakamura: Inflation may not reach 2% from FY 2025 on if consumption weakens
The Bank of Japan (BoJ) board member Toyoaki Nakamura said on Thursday that based on current data, it is appropriate to maintain policy intact for the time being, per Reuters.
Key quotes
Closely watching real wages
Warns Japan's economy at critical juncture
Uncertainty remains on sustainability of wage increases
Weak impact of rising wages on prices
Japan's economy recovering moderately albeit some weak signs
My view is that inflation may not reach 2% from fiscal 2025 onward if consumption weakens
Will focus on whether inflation-adjusted consumption turns positive, in deciding future monetary policy
Based on current data, it is appropriate to keep policy intact for time being
Pass-through of wages to inflation remains weak but closely monitoring situation
Households' purchasing power is weak, solid rise in disposable income is needed for households to boost spending
Personally not confident that wage growth will be sustained
Want to check whether capex growth will become broad-based, as some smaller firms appear to be delaying investment due to supply constraints
Structural changes in economy are necessary for Japan to sustainably, stably achieve BOJ's 2% inflation target
Market reaction
At the time of writing, USD/JPY is trading 0.27% lower on the day at 155.66.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.