TOKYO- Bank of Japan Governor Haruhiko Kuroda said on Monday the central bank would stick to monetary easing to support the economy for the present in order to achieve sustainable and stable inflation accompanied by wage growth.
Wage inflation, which has lagged policymakers expectations, is set to again take center stage during pay talks next spring and should determine how successful Japan would be in spurring a virtuous cycle of demand-led economic and price growth.
Kuroda said the job market will likely tighten, particularly at service sector firms, many of which employ low-paid part timers and contract workers. As wage gains spread gradually to permanent workers at small firms, a tight labor market could prompt a shift of labor to highly productive sectors, he said.
The annual labor-management wage negotiations next spring will likely take into account both the tightening of the job market and rising inflation, he added.
“We are at a stage where we will continue monetary easing to firmly back economic activity at present,” Kuroda told a meeting with business leaders in Nagoya in central Japan, home to Toyota Motor Corp, world’s biggest automaker by sales.
“This will help companies lay ground for wage hikes as we are aiming for sustainable and stable achievement of our price stability goal accompanied by pay increase.”
Atsushi Takeda, chief economist at Itochu Economic Research Institute, said that next year’s wage talks could achieve a 3 percent increase from this year’s 2 percent, although that would be still short of 5 percent demanded by the Rengo confederation of trade unions.
“The wages hold the key to see whether sustainable inflation takes hold. In that sense, tightening of the labor market may be an encouraging signal to Governor Kuroda,” who will bow out next April, with some success despite failing to achieve the 2 percent inflation goal, said Takeda.
Unlike the United States and Europe — which are tightening monetary policy to combat rising inflation — Japan is still only halfway to recovery from impact of the COVID pandemic, with the output gap remaining in negative territory, Kuroda said.
The BOJ maintained ultra-low interest rates at its last policy meeting in October, keeping its dovish guidance intact and heaping downward pressure on the Japanese currency.
The dollar rose to trade just under 152 yen late in October, which traders say likely prompted Japanese authorities to intervene for a second time within a month to support the yen.
