A Bank of Japan board member said Thursday that Japan is making "steady progress" toward achieving the central bank's 2 percent inflation target, expressing confidence about strong wage growth.
Junko Nakagawa, one of the nine members of the Policy Board, said she can foresee a virtuous cycle of strong corporate earnings translating into pay hikes for workers, a prerequisite for the BOJ to judge that stable inflation can be achieved.
Her comments at a meeting with local business leaders in Shimane Prefecture, western Japan, are the latest indication that the BOJ is growing more confident about the likelihood of attaining the inflation target "stably and sustainably" with the support of wage growth.
Market expectations have heightened that the BOJ will end its negative interest rate policy later this month or in April, a decision that would mark a symbolic departure from its years of powerful monetary easing to end chronic deflation, or continuously falling prices.
"Our nation's economic and price situation is that we are making steady progress toward attainment of the 2 percent price stability target, given that clear signs of change have emerged in terms of how firms set wages," Nakagawa said.
While uncertainty remains over the outlook and more data needs to be examined, the BOJ will consider changing its policy when the inflation goal comes within reach, she said.
"Should we decide to review our monetary policy, we will examine whether to modify our policy tools, including yield curve control and buying of risky assets, while also considering the impact (of a change) on financial markets and the unorthodox nature of the measures," she added.
Another board member, Hajime Takata, also said recently that he believes the inflation goal is "finally in sight."
Under a framework known as yield curve control, the BOJ sets short-term interest rates at minus 0.1 percent while keeping long-term interest rates extremely low.
In recent months, the central bank has eased its control over long-term rates to allow them to better reflect economic conditions and address the side effects of artificially keeping borrowing costs low. The benchmark yield on 10-year Japanese government bonds can now rise above 1.0 percent.
As part of powerful monetary easing, the BOJ has also been buying exchange-traded funds and commercial paper to provide ample funds to financial markets. It currently holds about half of outstanding government bonds, raising concern about its bloated balance sheet and a future exit from its unprecedented practice.
