A Bank of Japan board member said Thursday he is still not confident that its 2 percent inflation target can be achieved, suggesting that more time may be necessary for the central bank to transition to a policy of monetary tightening.
BOJ Policy Board member Toyoaki Nakamura stressed the need for wage growth to spread among smaller firms, noting that their earning power should increase. He was the only member who opposed the BOJ's decision in July to tweak its yield cap program designed to keep borrowing costs extremely low.
"What we have seen recently is cost-push inflation driven by higher import prices. If we change course and tighten monetary policy before higher sales prices lead to higher wage growth, this will curb demand and could diminish corporate earning power," Nakamura said.
"At this point, achieving the 2 percent target in a sustainable and stable way, accompanied by wage hikes, is not in sight, and therefore we need more time before shifting to a policy of monetary tightening," he told a meeting with local business leaders in Gifu, central Japan.
The comments contrast with another board member, the more hawkish Naoki Tamura, who said Wednesday that the 2 percent inflation target "has come into view."
Tamura said it will become clearer early next year whether the goal will be attained, hinting there may be a review on monetary easing and ending the current negative interest rate policy.
The BOJ has loosened its grip on long-term bond yields so that they can better reflect economic fundamentals. The yield on 10-year bonds can now rise above 0.5 percent.
The central bank, however, has maintained that the change is not a harbinger of future tightening and was instead designed to make its yield curve control program, criticized for distorting the bond market, more flexible in order to continue with monetary easing.
The BOJ expects core consumer prices, a key gauge of inflation, to rise 2.5 percent in fiscal 2023 but undershoot 2 percent in the following two years.
Nakamura noted as a positive sign that many companies have agreed to offer bigger pay hikes during annual negotiations between management and labor unions. Severe labor shortages are also adding upward pressure on wages, he said.
"A window of opportunity is open for Japan to shift from its deep-rooted deflationary mindset to a growth-oriented one," the board member said.
