TOKYO- Russia’s invasion of Ukraine will weigh on global growth and heighten risks to Japan’s economic recovery, a central bank policymaker said on Thursday, highlighting the need to keep monetary policy ultra-loose even as inflation perks up.
While consumer inflation may briefly exceed 1.5 percent, it likely won’t gain momentum to sustainably head toward the Bank of Japan’s 2 percent target, said GoushiKataoka, who has been a sole proponent to ramp up monetary stimulus.
“Disruptions in Russia-related trade will weigh not just on Russia’s economy but global growth by prolonging worldwide supply constraints,” Kataoka told business leaders in a speech.
“For the time being, we must pay attention to downside risks to Japan’s economy…as well as upside risks to prices.”
While supporting the economy remains a priority over the fight against inflation, BOJ policymakers were paying more attention to rising inflationary pressures even before Russia’s invasion of Ukraine on Feb. 24.
At their January gathering, bank board members agreed that consumer inflation may overshoot their expectations if companies pass on rising costs quicker than forecast, minutes of the meeting showed on Thursday.
“Many companies are feeling the limit of sticking to a business model that was effective during deflation. As they change their price-setting behavior, inflationary pressure may heighten,” one member was quoted as saying.
“We’re seeing stock prices rise for companies that hike prices,” another member said. “Price hikes may broaden, and heighten medium- to long-term inflation expectations.”
Many members said they were closely watching wages, which make up a big component of service costs and determine the extent to which households can absorb price hikes, the minutes showed.
Japan has lagged other advanced nations in recovering from the pandemic slump, with economic growth seen stalling in the current quarter due to weak consumption. – Reuters
