BOJ policymaker calls for keeping low rates, focus on wages

People walk in front of the bank of Japan building in Tokyo, Japan, April 7, 2023. REUTERS/Androniki Christodoulou/File Photo

TOKYO  -Bank of Japan (BOJ) board member Asahi Noguchi said on Thursday the central bank must maintain ultra-loose monetary policy to ensure wages, seen as key to driving inflation to its 2 percent target, continue to increase as a trend.

Noguchi said core consumer inflation, which has remained above 2 percent for more than a year, will likely fall below that level around September or October as the effect of past rises in raw material costs dissipates.

Whether inflation bounces back above 2 percent and stays above that level will depend on the outlook for wages and services prices, said Noguchi, who is considered an advocate of aggressive monetary easing in the nine-member board.

“What’s most important now is for the BOJ to maintain monetary easing and ensure budding signs of wage growth become a sustained, strong trend,” he said in a speech delivered to business leaders in Naha, southern Japan.

Noguchi also warned of risks to Japan’s economy, such as uncertainty over global economic and market developments.

The remarks calling for keeping ultra-easy policy echo those of fellow board member Seiji Adachi on Wednesday, and underscore the BOJ’s caution over dialing back its massive stimulus program too hastily.

Under yield curve control (YCC), 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, markets are simmering with speculation the BOJ will soon tweak YCC due to criticism the policy is distorting market pricing and crushing financial institutions’ profit margins.

BOJ Governor Kazuo Ueda has stressed the need to keep monetary policy ultra-loose until there is more evidence wages will keep rising next year, helping Japan sustainably hit the 2 percent inflation target.

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