TOKYO- Bank of Japan Governor Kazuo Ueda voiced confidence over prospects of higher wages and stressed the bank’s resolve to phase out stimulus if inflation durably hits its goal, despite data showing the economy has slipped into recession.
But he said the central bank will closely watch the health of Japan’s economy in timing an exit from its ultra-loose policy, especially annual labor-management wage talks that will conclude in mid-March for big firms.
“Once a positive wage-inflation cycle kicks off and sustained achievement of our price target comes into sight, we will examine whether or not to sustain our massive stimulus measures, including negative interest rates,” Ueda said.
“We’d like to scrutinize whether Japan’s economy continues to recover moderately, and whether a positive wage-inflation cycle would be sustained,” he told parliament on Friday, when asked by a lawmaker on how Thursday’s weaker-than-expected GDP data could affect the timing of an exit.
Ueda’s remarks follow data on Thursday that showed Japan’s economy unexpectedly slipped into a recession in the final quarter of last year on sluggish consumption and capital expenditure.
Sources have told Reuters that the BOJ is on track to end negative rates in coming months despite the economy’s fragility, as policymakers focus more on growing prospects of solid wage increases.
With inflation having exceeded the BOJ’s 2 percent target for some time, many market players still expect the central bank to end its negative interest rate policy by April.
Ueda said Japan’s real inflation-adjusted wages will likely turn positive as a tightening job market pushes up pay, and the effect of past surges in import costs dissipate. – Reuters
