BOJ’s Kuroda dismisses near-term chance of exiting easy policy

Bank of Japan Governor Haruhiko Kuroda on Monday ruled out a near-term exit from ultra-easy monetary policy but expressed hope that the worsening labor shortage will boost companies raise wages.

Kuroda said the BOJ’s decision last week to widen the subsidy band around the yield target was intended to enhance the effect of extremely easing policy, not as a first step towards withdrawing the program. huge stimulus.

“This is certainly not a step to retreat. The bank will aim to achieve its price target in a sustainable and stable manner, accompanied by wage increases, by continuing to ease monetary policy under control. yield curve control,” Kuroda said in a speech before a meeting of the Keidanren business lobby.

He also said Japan’s average consumer inflation is likely to slow below the BOJ’s 2% target in the next fiscal year as the impact of rising import costs has dissipated.

But Kuroda said wage growth is likely to pick up gradually due to growing labor shortages and structural changes in Japan’s job market, leading to higher wages for temporary workers. and increase the number of permanent employees.

“Labor market conditions in Japan are expected to tighten further, and companies’ wage and price fixing behavior is also likely to change,” said Kuroda.

“In this sense, Japan is approaching a critical juncture in coming out of a long period of low inflation and low growth,” he said.

The strength of wage growth is seen as key for the BOJ to soon lift its yield curve control target, set at -0.1% for short-term rates and around 0% for interest rates. 10-year bond.

The BOJ shocked the market last week by unexpectedly widening its range around its 10-year yield target. Kuroda described the move, allowing longer-term interest rates to rise more, as aimed at easing some of the costs of prolonged stimulus rather than as a prelude to formal policy normalization.

However, with inflation exceeding the 2% target, there is much speculation that the BOJ will raise its yield target when the term of dovish governor Kuroda ends in April next year.

While many companies are starting to raise prices to pass higher costs on to households, the BOJ must consider whether such changes in corporate price-setting behavior will become the new norm in Japan. Version or not, Kuroda said.

He said the outcome of salary negotiations next spring between major companies and unions will also be key to the outlook for wage growth.

Speaking at the same meeting, Prime Minister Fumio Kishida called for business leaders’ help in achieving wage increases high enough to offset the rising cost of living for households.

Japan’s core consumer inflation hit a new four-decade high of 3.7% in November as companies continued to shift rising costs to households, a sign of rising prices are spreading.

But wages have barely risen for permanent workers, as companies remain cautious about raising fixed costs amid an uncertain economic outlook.