By Leika Kihara
TOKYO (Reuters) – The Bank of Japan is widely expected to maintain ultra-loose monetary policy on Friday, despite stronger-than-expected inflation, as it focuses on supporting A fragile economic recovery amid a sharp slowdown in global growth.
The central bank is also likely to keep its pledge to maintain massive stimulus “patiently” to ensure Japan can sustainably meet its 2% inflation target while
However, with rising prices showing signs of widening, the market will focus on whether Bank of Japan Governor Kazuo Ueda will issue a stronger warning on the risk of inflation overshoot in his post-meeting news meeting.
The BOJ review follows the Federal Reserve’s decision on Wednesday to pause rate hikes as it closely monitors the lagged economic impact of past monetary tightening.
The Bank of Japan is widely expected to maintain its short-term interest rate target of -0.1% at its two-day meeting that ends Friday The bond yield is set at 0% under the Capped Curve Control (YCC) policy.
While the central bank is likely to warn about risks to the global outlook, it is likely to stick to its view that Japan’s economy is heading for a modest recovery thanks to a post-pandemic recovery, sources told Reuters. pick up.
Japan’s core consumer inflation hit 3.4% in April, above the BOJ’s target for more than a year, fueling expectations that the central bank will phase out the YCC sometime this year
Ueda has repeatedly dismissed the possibility of a near-term adjustment to the YCC, arguing that near-term cost-push inflation will ease back below the BOJ’s target later this year.
But he also said the BOJ would “act quickly” if its inflation forecasts proved wrong, noting signs that corporate pricing behavior was starting to change.
The Bank of Japan also signaled that Japan’s long era of wage stagnation may be coming to an end as companies offered the biggest pay rise in three decades.
In an academic paper published in May, the Bank of Japan said that inflation and wage growth may suddenly accelerate once costs exceed a certain threshold – a trend that may continue once wages start to rise.
Many BOJ officials, however, prefer to sit tight and look at global economic developments and corporate earnings for clues on whether wages will continue to rise next year. Solid business and household spending softened the blow from weaker exports this quarter.