Japan must focus on wage growth ahead of inflation – BOJ’s Noguchi

A worker checks machinery at a factory in Higashiosaka, Japan June 23, 2022. REUTERS/Sakura Murakami/File photo

TOKYO  -Japan must focus on improving wage growth to pave the way for sustainable inflation, Bank of Japan board member Asahi Noguchi said on Thursday, signaling that the central bank must retain its monetary easing policy for the time being.

Noguchi, known for his reflationist views, made the remarks in a speech to business leaders in Niigata, north of Tokyo, calling the more than 3 percent wage hike rise agreed upon earlier this year, the highest in 30 years, as “significant”.

“The biggest focus now is whether this (wage growth) momentum will be maintained or not from now on as well,” he said. “The BOJ’s mission for the time being is to realize it through patient monetary easing.”

Analysts said his comments were neither dovish nor hawkish.

“Noguchi followed the consensus view among the board members,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

READ: BOJ chief warns of highly uncertain wage, price outlook

“His emphasis on wage growth probably meant the BOJ will retain its easy policy until wage hikes are firmly in place following the labor talks next March.”

Japan’s wage trends, which have been largely flat over the past three decades since the asset-bubble burst, are closely watched by global financial markets as the BOJ has emphasized that sustainable pay hikes is a prerequisite for dismantling its massive monetary stimulus.

Household inflation

Noguchi said household inflation expectations are steadily rising, but if wage growth lags behind price hikes, consumers would have no choice but to reduce their spending.

He said consumer inflation would slow towards the latter half of this fiscal year in line with the fading impact of high import bills.

READ: Japan’s August inflation stays above BOJ target for 17th month

Under its yield curve control (YCC) policy, the BOJ sets a -0.1 percent target for short-term interest rates and caps the 10-year bond yield around 0 percent to reflate growth and inflation.

With inflation exceeding its target for more than a year, market speculation is rife that the BOJ may tweak YCC, after the central bank widened the allowance band set around the 10-year yield target, most recently in July.

At his previous speech in June, Noguchi said he saw no need to make operational tweaks to YCC for the time being, saying there were no clear distortions in the shape of the yield curve.

The BOJ next meets for a policy meeting on Oct. 30-31, when it issues fresh quarterly growth and inflation projections.