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Bank of Japan policymakers warn of fragile recovery, hint at persistently low rates

Leika Kihara

TOKYO (Reuters) – Bank of Japan board member Junko Nakagawa warned on Wednesday of risks to the country’s fragile economy, such as rising costs of living that could hurt household spending, stressing that for the time being The need to keep monetary policy ultra-loose.

While strong overseas demand and a weak yen boosted manufacturers’ profits, China’s strict Covid-19 outbreak led to supply disruptions – 19 Lockdown has hurt Japan exports and output, Nakagawa said.

Domestic consumption is picking up as the impact of the pandemic recedes, although the impact of widespread increases in commodity prices has cast a shadow over domestic consumption in Japan. Looking to the future, she said.

“For the economy to recover, it is critical that the damage to consumption from higher prices is kept to a minimum,” Nakagawa said in a speech to business leaders.

“There is real uncertainty in our base case, where consumption is expected to grow moderately,” backed by tight employment indicators and rising household incomes,” she said.

While consumer inflation surpassed the BOJ’s 2 percent target for several months, that alone was not enough for the central bank to withdraw stimulus, Nakagawa said.

“We must continue to ease monetary policy , to achieve our inflation target sustainably and stably, backed by a positive cycle that accompanies wage growth,” she said.

The Bank of Japan has committed to Maintaining ultra-easy monetary policy to support a fragile economic recovery remains an outlier among many central banks raising interest rates to combat soaring inflation.

Japan’s July core consumer prices rose 2.4% year-on-year , the fastest pace of growth in seven-and-a-half years, driven largely by fuel and raw material prices, as well as rising living costs for households that have yet to see significant wage increases.



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