Bank of Japan discusses wage hike and remission of deflation risk

By: News Team

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Bank of Japan discusses wage hike and remission of deflation risk

The Bank of Japan’s policymakers see a need to keep ultra-low interest rates but are looking at growing prospects that rising wages could finally eradicate the risk of a return to deflation, according to a summary of views expressed at its December meeting.

His increasing attention to rising inflationary pressures could keep alive market expectations that the Bank of Japan will phase out Governor Haruhiko Kuroda’s massive stimulus when he leaves office in April next year.

“The rise in prices is accelerating not only in the case of goods, but also in the case of services (…). There is a possibility that the inflationary impulse in Japan will be accentuated,” one of the members is quoted as saying in the summary published on Wednesday.

At the December 19-20 meeting, the Bank of Japan maintained its ultra-expansionary monetary policy, but surprised markets with a surprise modification of its bond yield control that allows long-term interest rates to rise further.

Several of the nine board members said the decision was aimed at making the current stimulus program more sustainable by addressing its side effects, rather than a step toward ending ultra-loose monetary policy, the summary showed.

However, the board’s discussions delved into signs of a change in Japan’s price outlook that could lay the groundwork for a withdrawal of stimulus when Kuroda leaves office next year.

Although core consumer inflation reached 3.7% in November, the highest level in four decades, Kuroda has ruled out the possibility of a short-term rate hike on the grounds that the increase in prices is due to the costs of raw materials and not to strong demand.

Analysts expect the Bank of Japan to raise its inflation forecast in its new quarterly growth and price forecast, which will be published after the next monetary policy meeting on January 17 and 18.

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