Bank of Japan Governor Kazuo Ueda spoke on Monday.
Justin had the headlines here:
Ueda was addressing a meeting of Keidanren (Japan Business Association) advisors. Keidanren is an important organization in Japan with close ties to Japan’s ruling Liberal Democratic Party. It advises the government on economic issues. Last week, the lobby group was on the podium advising the central bank:
More comments from Ueada from the event (headline summary via Reuters, in bold below is my comment):
Service prices are gradually accelerating the pace of increase, although it seems that many companies feel that it is not easy to pass on rising labor costs
If the positive wage inflation cycle strengthens and increases the likelihood of achieving the target rate sustainably enough, we will consider changing monetary policy.
We cannot determine in advance the timing of future policy changes, but we want to make the appropriate decision while scrutinizing economic developments, corporate wages, and price-setting behavior
In an economy where positive inflation persists, nominal interest rates will be high and give the central bank room to cut interest rates sharply when necessary.
When monetary policy works effectively, this means that the risk of the economy deteriorating sharply or returning to deflation will diminish
The Bank of Japan is patiently maintaining monetary easing to ensure continued signs of change in corporate wages and price-setting behavior
The Bank of Japan will carefully study economic developments, including whether the positive wage inflation cycle will strengthen, and will make appropriate decisions towards achieving the target rate sustainably.
- The probability of achieving the target price increases gradually
It may take some time, but the upward pressure from previous rises in import prices is likely to gradually ease
I hope that Japan will finally emerge from a low inflation environment and achieve a positive wage inflation cycle
It is unlikely that in the past stages, demand is supported by the government’s stimulus measures and the continued easing policy pursued by the Bank of Japan.
Corporate views on medium- and long-term price expectations are showing signs of changing
- At this point, the probability of achieving the target price is not high enough
Uncertainty surrounding the domestic and external economy and price developments is very high
We must examine how firms’ wages and price-setting behavior are changing
The key point is whether the apparent wage increases will continue in next year’s annual wage negotiations
It is crucial to increase corporate profits to lead to higher household income
The key here is whether companies will be able to reflect rising labor costs with the prices of their goods and services
Ueda made positive noises, saying that the probability of achieving the inflation target is “gradually rising” and that he would consider changing policy if the probability of achieving the 2% target sustainably increases “sufficiently.” Also note that he said he wasn’t there yet:
- At this point, the probability of achieving the target price is not high enough
. There is still a lot of evaluation and discussion about the upcoming timing:
- He added: “We will carefully study economic developments as well as the behavior of companies in setting wages and prices, and then decide future monetary policy in an appropriate manner.”
Speculation remains that the Bank of Japan’s shift towards tighter policy is imminent. We’ve been hearing the rumors all night for a couple of years now, and my current best guess is not before April. The next meeting is on January 22 and 23.
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Bank of Japan dates for next year: