BOJ chief vows to maintain easing, watch impact of global tightening

The Bank of Japan will maintain an ultralow rate policy amid heightened uncertainty over the global economy caused by policy tightening in other economies, while keeping close tabs on the financial market impact of rate hikes overseas, Governor Haruhiko Kuroda said Monday.

In a speech to business leaders in the central Japan city of Nagoya, Kuroda stuck to the view that a recent pickup in inflation, driven mainly by higher commodity prices and a weaker yen, will not be sustained, even as the nation has seen a broadening of price hikes by companies.

The central bank has said its 2 percent inflation target should be attained in a stable and sustainable fashion supported by robust wage growth. Despite the headline inflation figure in Japan topping that threshold in recent months, Kuroda has ruled out the possibility of a near-term interest rate hike because inflationary pressure is expected to ease.

"At present, the Bank of Japan deems that it should continue with monetary easing and thereby firmly support economic activity," Kuroda said in his speech.

"By doing so, it aims to provide a favorable environment for firms to raise wages and to achieve the price stability target in a sustainable and stable manner, accompanied by wage increases," he said.

As the BOJ's monetary policy, partly blamed for accelerating the yen's sharp decline of late, has come under greater scrutiny, Kuroda has stressed the need to retain the existing policy framework to foster wage growth, a key factor in achieving inflation supported by strong demand.

Monetary tightening in advanced economies like the United States and the eurozone has raised concern about a global economic slowdown. Kuroda said it is necessary to "carefully monitor" the impact of such moves, including adjustments in asset prices and capital outflows from emerging economies.

The Japanese economy likely grew in the July-September quarter, though at a much slower pace in the preceding three months.

The BOJ chief said the economy will be aided by the emergence of demand that had been depressed by the COVID-19 pandemic and a recovery of inbound tourism going forward.

For the economy to see stronger demand, wage growth will be vital as the recent bout of inflation is weighing on consumer sentiment.

Prime Minister Fumio Kishida is asking companies to offer pay hikes that can keep pace with accelerating inflation when labor-management wage negotiations commence early next year.

"The rises in prices to date will likely be reflected to a considerable extent in the outcomes of the next annual spring labor-management wage negotiations," Kuroda said, while noting that wage developments should be carefully examined.

© Kyodo News