BOJ official warns against early monetary tightening

- Advertisement -

TOKYO/GIFU, Japan- Bank of Japan board member Toyoaki Nakamura said on Thursday it was premature to tighten monetary policy, as recent increases in inflation were mostly driven by higher import costs rather than wage gains.

The central bank would take time to determine whether it can raise interest rates as it waits for evidence that a sustained economic recovery will eradicate Japan’s deflationary mindset, he said.

“The key is for the economy to keep recovering,” Nakamura told a news conference, when asked about the conditions for ending negative interest rates.

- Advertisement -

“Once there’s a general feeling Japan’s deflationary mindset has been eradicated, we won’t need yield curve control. But we’re not there yet,” he added.

His remarks contrast with those of board member Naoki Tamura, who signaled the chance of a policy tweak early next year, suggesting there was no consensus within the nine-member board on how soon the BOJ can scale back its massive stimulus.

A former executive of electronics giant Hitachi Ltd Nakamura was a sole dissenter to the BOJ’s decision in July to allow long-term interest rates to rise more freely.

Although many firms raised pay this year, there was uncertainty on whether smaller companies can earn enough profits to keep hiking wages next year and beyond, Nakamura said.

“Sustainable, stable achievement of our 2 percent  inflation isn’t in sight yet. We therefore need more time before shifting to monetary tightening,” he said, adding the key was to determine whether companies’ growth expectations were heightening.

“Japan is trying to emerge from 25 years of deflation. The decision (on when to end low rates) will take time,” he added.

Under its yield curve control (YCC) policy, the BOJ guides short-term interest rates at minus 0.1 percent  and the 10-year government bond yield around 0 percent  to reflate economic growth and sustainably achieve its 2 percent  inflation target.

Author

- Advertisement -

Share post: